Jack Ryan on The Housing Cartel That's Stifling The American Economy
May 30, 2024
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Author Jack Ryan exposes the monopoly-like behavior of real estate institutions in the US, questioning fixed 5.5% fees. Discussion on MLS, Zillow's impact, Rex Homes, and potential market responses to fee changes. Lawsuit against Zillow and NAR for antitrust issues. Analysis of housing market, interest rates, and economy impact of fee reductions.
The residential real estate brokerage business in the US operates as a cartel with fixed fees, impacting consumer costs and market competitiveness.
Eliminating fixed fees in real estate could lead to increased home transactions, productivity, and broader economic benefits.
Barriers to competition from entities like NAR and MLS systems hinder market competitiveness, affecting industry players, economic growth, and consumer welfare.
Deep dives
The Impact of Fixed Real Estate Fees
The discussion focuses on the cartel-like nature of fixed fees in the residential real estate brokerage business in the US. Highlighting that the industry charges a consistent 5.5% fee, regardless of property price or market conditions, the podcast delves into the disparity with other countries where fees are significantly lower, impacting consumer costs and overall market competitiveness.
Market Influence and Economic Implications
The podcast explores the far-reaching effects of the fixed fees on the market, pointing out how the existing pricing structure leads to inflation in housing costs and impacts GDP growth. By addressing the potential outcomes of eliminating these fees, such as increased home transactions, enhanced productivity, and broader economic benefits, the episode highlights the interconnections between fixed fees in real estate and broader economic implications.
Challenges to Competition and Industry Dynamics
Examining the barriers to competition in the real estate industry, particularly through the actions of entities like National Association of Realtors and MLS systems, the discussion sheds light on the complexities that hinder market competition and consumer choice. It delves into the challenges faced by innovative firms like Rex Homes in challenging the status quo and the broader implications on industry players, economic growth, and consumer welfare.
Impact of High Fees on Real Estate Market Participants
The podcast discusses how high fees in the real estate market can have varying impacts on different participants. These fees, when locked as a long short idea, are deemed beneficial for title services, carpenters, and home builders, positively affecting GDP and the economy, yet negatively impacting inflation. While these fees could be advantageous for certain sectors, they can be detrimental to real estate agents and brokers, leading to shifts in market dynamics and financial outcomes.
Challenges Faced by Online Real Estate Brokerage Services
The episode delves into the challenges faced by online real estate brokerage services like Zillow, Redfin, and Compass Group. These services, distinct from traditional agents, have seen a decline in value due to reduced transactions stemming from higher mortgage rates. Unlike individual real estate agents who can compete for excess profits based on performance, brokerage firms in the industry struggle to secure such profits, highlighting a competitive landscape with implications for business sustainability and financial rewards.
Forward Guidance is sponsored by VanEck. Learn more about the VanEck Morningstar Wide MOAT ETF (MOAT) at https://vaneck.com/MOATFG.
Jack Ryan’s book: https://www.simonandschuster.com/books/Bringing-Adam-Smith-into-the-American-Home/Jack-Ryan/9798888451946
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Timestamps:
(00:00) Introduction
(01:01) The Residential Agency Brokerage Business Is “The Largest Cartel In The U.S.” Argues Jack Ryan
(18:01) Is This Legal?
(23:24) Role of Multiple Listing Services (MLSs)
(28:32) Zillow’s Business Model
(35:24) VanEck Ad
(36:04) Rex’s Plans To Go Public Disintegrated After Material Slowdown In Business Upon Zillow Change
(39:39) Long And Short Ideas If Brokerage Fees Were To Go Down
(44:26) If Brokerage Is Such A Good Business, Where Are All The Excess Profits?
(48:40) How Zillow’s Business Decision May Have Impacted Rex Homes
(54:11) Rex’s Lawsuit Against Zillow, NAR, and Trulia
(01:05:55) National Association of Realtors (NAR) Has A Grip On Washington DC
(01:11:59) Closing Thoughts On Strength Of U.S. Housing Market
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
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