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

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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)

Related Articles

Speculators Push Housing Rents Down

Speculators Push Housing Rents Down

By RUTH SIMON
Staff Reporter of The Wall Street Journal
From The Wall Street Journal Online

As investors flood into the housing market, they are not only pushing
up home prices. They are also putting downward pressure on rents.

http://www.realestatejournal.com/propertyreport/residential/20050815-simon.html?rejcontent=mail

Not sure we’ll see this play out in Greater Boston where rents are still
relatively high (7th in the nation), and investor activity is relatively
low, but the growing spread between falling rents and cost of starter homes
might be pointing to an affordability gap where the housing market will stall.
If renters can get deals so good that it makes no sense to buy, and investors
start leaving the housing market, there could be an oversupply of starter
condos on the market in some areas and prices will begin to fall.   The supply
of unsold homes in already rising in some markets, including Boston where
the inventory of unsold homes is up over 30 percent.   And that is with near
record low interest rates.   The inventory of unsold homes is likely to hit
a new record here in Boston this Fall. Watch for us to pass 40,000 listing
by the 2nd weekend after Labor Day.   Some might ague that the only real
indication that the market has turned is when local housing prices are flat
or begin to fall.   But there may be something more subtle going on under
the numbers.   If prices remain high or rising, it may reflect what is going
on at the top of the market, and ignore the fact that other sectors, like
starter condos are stalling even if prices have not started falling.   As
many economists say, the housing market hisses as it cools, it does not pop
overnight.   So, a decline in housing prices could be delayed for a year,
while signs that the market is headed for a downturn grow with each month. 

Wall Street “spooked” by falling housing index

Brainstorming about user generated content / video contest:
Haunted by the Housing Market

The Real Estate Cafe has maintained an excel spreadsheet comparing
housing market conditions from 2000 to 2007.  The original version was
prepared for Halloween 2002, and resulted in a slideshow called,
"Haunted by the Housing Market."

As Halloween approaches this year, and NPR reported yesterday that Wall Street was "spooked
by a sharp drop in housing prices," we are thinking about sharing the
spreadsheet and inviting others to update the "Haunted by the Housing
Market" slideshow.

Better yet, what would it take to create a contest with different categories for user-generated content, like "Funniest Housing Bubble Video," "Best slideshow attached to an offer" (samples available),
etc.?  We’re open to putting our content on the web so others can
"mash-up" images, statistics, quotes (both audio and text), etc.

Any good models and potential sponsors out there?

Cross-post:  "Haunted by the Housing Market" originally mentioned as comment in this blog post:
Wait 2.0:  Negative cycle creating marginal or mega-savings for patient homebuyers?

Use the following quotes to launch "Haunted by the Housing Market."

NPR:  The closely watched S&P Case-Schiller housing index earlier this week spooked Wall Street when it showed a sharp drop in home prices — down more than 3 percent in the second quarter alone. 

Karl Case, a housing economist who helped develop the 20-year-old index, says it’s the largest price decline since the inception of the index.

Economists expect total declines of about 10 percent throughout many parts of the country — and up to 25 percent in some of the formerly hottest markets.

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