Financial Crisis

Why Doesn't the Real Estate Industry Face the Same Scrutiny as Wall Street?

Understanding a puzzling aspect of the financial crisis and its aftermath.


A recent newspaper included a glossy magazine with an article urging me to run out and buy a house — fast!

"Thanks to historically low interest rates, affordability is at an all-time high," the article said. "I highly recommend taking advantage of this opportunity before conditions change — although interest rates are still hovering just above their lowest rate, they will start to climb. In this climate, it's absolutely crucial that you're prepared to move quickly."

This article was written not by some journalist but by the president and CEO of Douglas Elliman Real Estate, Dottie Herman. Nothing against Herman or her company, but the article, and the lack of scrutiny it received, highlight one of the puzzling aspects of the financial crisis and its aftermath — bankers were hit with new regulations and called before congressional hearings, but the real estate industry has escaped largely intact.

Herman's assessment of housing "affordability" should be taken with a Everest-sized mountain of salt. The New York Times reported back in January of 2009 that the National Association of Realtors had declared "housing affordability was at an all-time high in December." That was December of 2008 they were talking about; it's now 2013, more than four years later, and the real estate industry is telling us again that "affordability is at an all-time high."

Similar skepticism should be applied to her predictions about interest rates. Federal Reserve officials reportedly don't expect to raise them until 2015. Even then there will be strong pressure from Treasury not to raise them much, because doing so would wreck the federal budget by increasing the government's borrowing costs. If Dottie Herman really knew what's going to happen to interest rates, you'd think she'd be trading bonds rather than selling real estate.

Her article bases the affordability claim on an example of "assuming a 30-year fixed mortgage with 10% down." If these houses she is hawking are as affordable as she claims they are, you'd think the borrowers might be able to scrape together a 20 percent down payment.

There may be some formula by which housing affordability is at an all-time high, but to New Yorkers who have seen the nominal prices of houses and apartments double or triple or more in the past decade or two, this is the sort of claim that will elicit a chuckle, if not a snort or an eyeroll. So is the admonition to "move quickly." Most real estate brokers are paid by the deal, not by the hour, so if the buyers rush forward with "the strongest offer," as Herman advises, it makes things easier for the brokers. If you are a buyer, though, you may get a better deal by being patient and waiting the seller out.

If this were a oil-company executive talking up his own interests, or a banker, the press or politicians would be tearing his claims apart. But for some reason, the real estate brokers get a pass. Maybe, as others have suggested, it's because everyone's mom's friend seems to be a real estate broker, while Wall Street bankers or derivatives traders seem to be more remote and better paid.

And maybe the double standard is for the best — the last thing we need, after all, is another American industry hauled before Congress or saddled with unworkable and expensive regulations. It's not as if the real estate brokers and home builders felt no pain at all; plenty of them had slow years after the financial crisis.

One other possible explanation of why Herman's claims don't receive critical scrutiny in the press is that the editors are on her payroll. And by that I mean not that Elliman is a large advertiser, or that it paid to insert the glossy magazine into newspapers, though both those things are true; no — the editors are literally (paging Joe Biden) on her payroll. The "contributors" page of Elliman magazine lists both the features director of T, The New York Times Style Magazine, Maura Egan, and the real estate editor at the New York Daily News, Jason Sheftell.

Sheftell told me he holds the ethics of the journalistic profession in the highest esteem, and that his work for Elliman "is vital to conveying to my readers how these firms — big and small — operate." By this logic, political editors should do paid freelance work on the side for candidates, or for magazines run by political parties.

Sheftell declined to say how much he was paid by the real estate company. But given how affordable housing prices are these days, who knows — it may just be enough to help make that down payment, so long as he's "prepared to move quickly."

NEXT: Chicago Official Convicted in Tainted Water Scandal


  1. “Sheftell told me he holds the ethics of the journalistic profession in the highest esteem, and that his work for Elliman “is vital to conveying to my readers how these firms ? big and small ? operate.” By this logic, political editors should do paid freelance work on the side for candidates, or for magazines run by political parties.”

    I may need my irony detector retuned, but don’t political editors do freelance work for campaigns already? They may not get cash, but they certainly get better access and other perks.

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  2. The reason why the real estate market didn’t face the same scrutiny as wall street is because it makes bad optics. After all, who could be against lower income people getting an affordable home? It’s all emotion, much easier to hate wall street.

  3. As a loan officer for a brokerage in California, I can assure you that there has been a huge increase in regulation, licensing and costs in the industry since 2008.

    Not only do we have a few new federal regulators (NMLS, CFPB), our compensation is now fixed by percentage and we can’t even offer a better deal to our customers if we wanted to.

    So if I have to charge every client 1.25 points, why would I ever do a loan for $100,000 when it’s the same amount of work as a $1 million loan? I basically turn away anyone with a loan of $200,000 or less now.

    I’d say that is an “unintended” consequence, but I have a sneaking suspicion it was designed by the big banks to push brokers out of the lower end of the market.

    1. You are not the “real estate industry” but the “financial industry”, so this article was not referring to your business, which deserved all the scrutiny it got.

  4. ” Even then there will be strong pressure from Treasury not to raise them much, because doing so would wreck the federal budget by increasing the government’s borrowing costs.”

    You can say that again. In fact someone should be screaming from the intersections with a bullhorn 5 days a week. When the Fed rates return to their historical averages, the Federal budget will be hit with around $500 billion in additional costs.

    1. Doesn’t the extra interest apply only to new bonds issued? So existing 10 year bonds would still be 1.65% or whatever it is now, even when interest rates rise to 6%.

      1. Yes.

        But the Obama administration has transitioned a lot of the 30 year bond debt to more short term instruments. So you have a 10-15 year period of rapidly climbing debt.

  5. Why? Because if the real estate bubble was given close scrutiny it would quickly become obvious that the root of the trouble was the lefty-trendy idea that poor people should be able to get mortgages and the move to arm-twist banks into changing the rules so they could.

    1. Because lefty-trendy ideas revolve around reversing cause and effect. For example, middle-class people own their houses, therefore if we give poor people houses they will become middle-class. Successful people have high self-esteem, therefore if we build high self-esteem in children they will be successful.

      1. Reynolds’ First Law: “Subsidizing the markers of status doesn’t produce the character traits that result in that status; it undermines them.”

    2. I don’t think it (the problem or the whole “everyone has to own a home” meme) was specifically limited to poor people and I think monetary policy was the single biggest factor in the eventual economic crash

      1. The policy that set up the real estate market crash was the “Banks that don’t lend to brown people who won’t pay the money back are racist” nonsense. This was made worse because the banks were’n allowed to set special conditions for brown people, they had to loosen the conditions for everybody. That meant all KINDS of homers who weren’t good risks got loans they shouldn’t have, and that people who would have been good risks for $x got loans for $3x.

        I bought several houses during the bubble. Each time my Lady and I were appalled at how much loan the banks said wee were qualified for (my Lady’s father was an actuary). We NEVER took out all the loan we could have. How many people who didn’t know better trusted the numbers they were told?

        The whole sub-prime mortgage market was the banks trying to find a way to deal with the risk they had undertaken because the government held a gun to their heads. And the reason that such a high percentage of people in banking these days appear to be highbinders and swine is that when the government tells an industry to do something stupid and dishonest, the smart and honest people will get the hell out.

        Sure, there were other contributing factors, but that’s the skeleton in the closet. And the Democrats, who blocked a lot of Republican efforts to address the situation (who knows if any would have worked) desperately don’t want anyone to look at it too closely.

  6. Dude nows what is up man, Wiw

  7. So….Realtors have to be regulated now because the Fed/Banks/Pols screw with the housing market? Isn’t the point of the free market to allow the cream to rise to the top? As in, maybe you should find a trustworthy Realtor to help you with your business and let the bad apples starve. Pro tip from a Realtor: if your Realtor makes you think there is no risk to buying a house, you should probably get a new Realtor. If you consider that interest rates ARE at historic lows, that would also mean REAL (as opposed to nominal) monthly payments are at all time lows as well, especially considering housing prices fall from the top?

    1. Fuck realtors. And fuck spelling it with a capital r. Fuck tax credits and such.

  8. Hype from realtors is good for a laugh, but we should also analyze the fundamentals of the situation. Because they aren’t making any more land, the ordinary rules of supply and demand don’t apply, and land prices get bid up to unaffordable highs; then they crash. This is called the business cycle, but it’s really the real-estate cycle, or the land speculation cycle.

    1. Land /=/ real property.
      Real property is a bundle of rights. And those rights can be limited or expanded nearly without limit:
      Build up. Build denser. Re-zone. Etc. etc.
      Lots of land.
      Not enough political will to abandon the 55×125 lot so many of our cities are filled with, despite that nobody in the past 30 years wants lots those big.


        Speak for yourself. Not everybody wants to live like bacteria in a petri dish. And markets have a way of shaking that out – no political will required.

  9. My in laws (very cool but with the fiscal discipline of a 12 year old coke-head,) just qualified for a no $ down 3.25% federal loan. Shitty credit, inconsistent income, and total repo 7 years ago… no problem! Wonder who’ll take the blame when the bubble pops again

    1. Please tell me how. My wife and I moved for employement, show consistent income and are both high 600’s credit score. What we’ve both done is changed careers and we’re getting smacked around during pre-approval. If something else exists, please share cause we’re getting beat up on rates and what we need to put down.

  10. Newspapers are surviving on RE advertising. They won’t call out the industry.
    But if anything is costing consumers, it’s regulation of the RE industry.
    Why can’t we let anybody just pick their tour guide. Pay them a fee. And decide on their own.
    When they started fetishizing the tour guides as capital “R” realtors it got expensive.

  11. A free marketer would say “let them advertise what they want” but “buyer beware/caveat emptor”. I would much rather put my money on better educating our children (and many adults) to have critical thinking skills in order to root out such advertising nonsense.

    The original problem is actually the number of firms that are over-regulated and ‘bailed out’ when the time comes to disappear because of major mistakes. Not just banks, but many industries in the United States get some sort of ‘protection’ or preferential treatment, usually because their lobby is effective. Just have a look at all the fine print BS in the proposed immigration legislation concerning different industries. Where’s the level playing field? Who ends up paying for the lack of a level playing field – we the taxpayers do.

    Had the government really done its job, many of the large banks would have been broken up and the pieces sold to healthier institutions. The ‘leadership’ of many financial institutions and many elected representatives would have lost their jobs very quickly.

    Unfortunately, the majority of Americans are more interested in watching intellectual programming like ‘Hillbilly Hand Fishing’ and the umpteenth season of ‘Dangerous Catch’ (how many crab pots can you watch going up and down?) than something as boring as how their tax money is being blown.

  12. There has got to be a major overhaul in the real estate industry! There is a cause & effect reality of real estate markets. The banks were making loans WAY TOO EASY to obtain & Wall Street bundled & sold the bad debt (it’s still happening, haven’t they learned?) The combination of industries offered these opportunities w/ help from the govt by creating them. It’s not clear to me why the real estate industry hasn’t been held culpable for their part. It may be that they are not held in as high regard as the bankers & the Wall Streeters, but they should be. Your biggest investment decision is in the hands of someone who is licensed & held accountable w/ a Code of Ethics. As far as “affordability being at an all time high,” stats are easy to manipulate. The real estate industry relies on herd mentality. Remember the NAR’s saying of ’08 & ’09 “Now is a great time to buy a home”? They believe that if you repeat your point long enough, people will eventually buy into it (Unfortunately, even the most gifted prognosticators didn’t see that crash coming.) I’m sure that Ms. Herman can come up w/ stats that demonstrate her claim. In order for the industry to be overhauled, it should start by putting some credibility in the licenses that these agents earn & hold them responsible for not growing & changing w/ these economic times for which we have all had to adapt.

    1. The shysters bundling the bad debt and trying to sell it are not the problem. The suckers buying the bad debt, they are the problem.

  13. Why does the media give real estate a pass? Maybe because they provide so much revenue, in the form of advertisements.

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  16. “But for some reason, the real estate brokers get a pass.”

    So the federal government forces lenders to lend to people who can’t afford it and then these people come to me and want to buy a house that is overpriced because thousands of people who can’t afford them are putting pressure on the market (supply and demand…what a concept)and I’m supposed to turn them away and say “no you can’t buy a home. I refuse to sell you a home.”? How long before I am pulled up in front of a disciplinary board and have my licensed pulled for not selling homes to these people?

    Yeah, the realtor is the problem.

  17. The real estate industry is a dinosaur. The Internet has made the MLS obsolete. Homes are commodities. Yet Realty companies use the same techniques they did 30 years ago. Commissions are insanely exorbitant as they are no longer commensurate with the work they perform. The entire home selling industry needs a wake-up call. After going through three “award winning” Realtors I finally broke down and sold my “unsalable” condo myself. It was so easy I don’t know why I was intimidated to do so beforehand. The only hard parts are finding a buyer and negotiating a price. But find and negotiate I did and saved lots of money. The Real Estate industry needs to change BIG TIME or they’re going to find themselves at the bottom of the tar pit of time.

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  19. You are honestly questioning whether magazines ought to be allowed to publish whatever ideas they like?

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