Will Wall Street cause Consumer Advocates to revisit Real Estate Cartel?


An article by Inman News, a leading real estate technology news site, has traditional real estate agents buzzing about a potential threat.  More revealing than the headline, Welcome to Wall Street’s housing market, is the subhead:

Investors will eat agent commissions and begin to control housing stock

As a longtime real estate consumer advocate, my fear of Zillow Instant Offer mirrors that of Barry Zigas, director of housing for Consumer Federation of America:  large institutional investors or iBuyers have the potential to “box out first-time homebuyers in some markets by purchasing with cash and removing inventory from the market.” Not just any inventory, but AFFORDABLE inventory which means they’re making it harder for ordinary homebuyers.

Zillow’s new entry is arguably a response to two other well-funded iBuyer models:  OpenDoor and OfferPad.   To date, their combined impact on the market is insignificant and their fees are outrageous — 9-12% on top of purchase prices according to 1000Watt.  Given that, is it credible to fear that a 3% market share in test markets will morph into market domination when the post real estate recession buying spree by institutional investors only resulted in 1 to 2% ownership of single-family homes?

Why fear a POTENTIAL threat from iBuyers when EXISTING non-end use buyer’s, including:

1. Small local flippers,

2. AirBnB investors;

3. Foreign buyers (aka #SpeculatorsWithoutBorders), and

4. Crowdfunding pools

accounted for 37% of sales in 2016 from according to Mark Hanson? Curiously, that’s the same percentage of condo buyers in Boston who paid CASH during April 2014.  If cash buyers and existing investors are already putting artificial upward pressure on housing prices, why no industry outrage?  If there’s already a huge problem, why not explore ways, as Inman News writes, that Wall Street involvement can “improve housing affordability?”

Not a single county in the US has enough affordable housing. If Wall Street funded innovations, like shared equity, can help change that in a way that is responsible and promotes purchases by first-time homebuyer without contributing to overheated markets, affordable housing advocates will celebrate their solutions. However, if they are simply adding to or extending speculative pressure, time to ramp up regulatory reform rather than retreating?

When it comes to regulatory reform, few organizations can mobilize coalitions like the Consumer Federation of America (CFA); and after laying low for a decade, glad they’re talking about real estate.  If the Wall St threat is really about protecting existing commissions, incumbents should know that CFA first called the real estate industry an “informal cartel” more than 25 years ago.  They underlined that position in their last white paper on real estate, which will have it’s 11th anniversary next week, June 19, 2006.  That was near the peak of the last real estate cycle, is history poised to repeat itself?

http://bit.ly/RECartelCFA_2006 (share via social media)

Call to action

We can’t predict the answer to that question but we can debate it at local offline events we call #BubbleHour or #REonTap.  We can also give homebuyers a choice of fees and rebates, as well as reactive house hunting or proactive.  As our Inman Innovator designation attests, we’ve got a long history of trying to reform the real estate industry, including an event that featured Ralph Nader and the Consumer Federation of America in 1993.  We invite change agents from Wall Street to Main Street to follow / share / join #RE2020 to deliver billions in Consumer savings by the year 2020.

http://RE2020.Loomio.org (share via social media)

Posted in #REonTap, #SpeculatorsWithoutBorders, Bubble Hour, Commission Reform, Consumer protection, Disrupt Real Estate, Housing bubble, RE2020, RECALL: Real Estate Consumer Alliance, Unbundling the Commission

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