Category: Real Estate

No possibility of future conspiracy among realtors…

by philg

… because there will be only one realtor.

“Home Sellers Win $1.8 Billion After Jury Finds Conspiracy Among Realtors” (New York Times, October 2023):

The influential National Association of Realtors and several brokerages were ordered to pay damages to home sellers who said they were forced to pay excessive fees to real estate agents.

A federal jury ruled on Tuesday that the powerful National Association of Realtors and several large brokerages had conspired to artificially inflate the commissions paid to real estate agents, a decision that could radically alter the home-buying process in the United States.

… under the verdict, the sellers would no longer be required to pay their buyers’ agents, and agents would be free to set their own commission rates, which could be slashed in half or less. For example, a home seller with a $1 million home can now pay as much as $60,000 in agent commissions — $30,000 to their agent and $30,000 to the buyers’ agent.

It looks like the problem has been solved for the long run (not in the short run, though; “Why broker fees have barely changed since the big settlement” (Axios, May 1, 2025)). It won’t be possible for brokerages to conspire because there will be only one brokerage. “Brokerage Giant Compass Agrees to Acquire Rival Anywhere for $1.6 Billion” (WSJ, today):

Leading real-estate brokerage Compass said it has agreed to acquire rival Anywhere Real Estate for $1.6 billion, the clearest sign yet that a long stretch of lackluster home sales is sparking industry consolidation.

The all-stock transaction would create a new industry giant with an enterprise value of about $10 billion, including debt, in one of the largest deals ever in the residential brokerage industry.

Compass and Anywhere were already the first- and second-biggest brokerages by volume in 2024, respectively, according to RealTrends. Compass has about 40,000 agents, while Anywhere has about 51,000 agents at brokerages it owns and another 250,000 agents at its franchises.

I’m trying to figure out why the U.S. has antitrust laws if something like this is allowed to occur.

Separately, if you’re about to buy the new iPhone, here’s a photo of where some of the money you previously gave to Apple went, from “Ex-Apple CEO John Sculley sells Palm Beach mansion for $37 million” (USA Today, 9/10/2025):

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Wall Street Journal warns New Yorkers not to move to Florida

by philg

New York-based journalists love to write about how New York taxpayers shouldn’t flee to Florida and skip paying 14.8 percent state/city income tax, 8.9 percent sales tax, and 16 percent estate tax (vs. 6-7 percent sales tax in FL and 0 percent income/estate). Here’s a recent example, “The Worst Housing Market in America Is Now Florida’s Cape Coral”:

The median home price soared nearly 75% to $419,000 in three years, transforming the character of this middle-income community that for decades has catered to retirees and small investors. … Home prices for Cape Coral-Fort Myers have tumbled 11% in the two years through May

So the prices went up about 56 percent, over a five-year period. That’s before adjusting for Bidenflation. What happened in the U.S. overall? Prices went from 218 to 331 (source), a rise in nominal dollars of 52 percent:

In other words, for people who bought a house five years ago (the average tenure in a house for an American is about 12 years), what the WSJ calls “the worst housing market in America” outperformed the U.S. residential real estate market overall.

What Zillow shows is that the Cape Coral market was more volatile than the national average:

So Cape Coral actually has been a bad market for home-flippers who had the misfortune to buy in at the peak, but for the typical Cape Coral homeowner it has been a better market (albeit, not by much) than the average U.S. real estate market. What about for the elites who put the Wall Street Journal together? How has their Manhattan real estate done by comparison? Zillow:

(“New York County”=Manhattan)

So Cape Coral is objectively speaking the worst housing market in the U.S. (reported as fact/news by the Wall Street Journal rather than as opinion). At the same time, people who owned property in Manhattan fared far worse over the past 6 years or almost any time window within those 6 years.

Related:

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Coronapanic and landlords

by philg

An aviation connection owns 250 apartments in the middle of the country. I asked him whether he’d lost a lot of money during coronapanic when nobody had to pay rent and he was barred by order of the CDC from evicting anyone. “No,” he said. “Nearly all of my tenants kept paying and, in fact, many of them applied for and received government assistance to pay their rent. I already had 20 percent Section 8 vouchers and ended up with about half of my income coming from the government.”

He took the opportunity to refinance his properties at a 2 percent rate and also substantially raised the rents that he was charging (i.e., his costs fell and his revenue soared). He estimates that his property doubled in nominal value between 2019 and today. He raised rents by 50 percent.

Who else got rich? “The local car dealer [in his small town] bought a Phenom 300 and a Bell 407” (that’s $15 million worth of aircraft; the Phenom 300 is made by Embraer in Brazil)

What else has been working for him? Open borders. “I love having Latinos as tenants,” he said (sorry about the hateful failure to use proper English (“Latinx”), but it is a direct quote), “but sad to say that the English-speaking tenants get upset if there are too many Latinos in their complex. They complain about Mexican music being played and noise. I don’t want to be racist and exclude people on the basis of being Hispanic because it makes other tenants upset.” Has the rising cost of labor eroded his increased profit margin from the 50 percent rent boost? “No,” he replied. “White people have pretty much stopped working, but there are plenty of hard-working Latinos. I wish that I spoke Spanish because then I could do a better job explaining what I need.”

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Climate change leader tosses a $110 million 6-year-old house into a landfill

by philg

Let’s start off in the Department of Sick with Envy… “Lavish Palm Beach mansion built just six years ago, then bought for $110m last year ‘by Estée Lauder boss’ will be TORN DOWN and replaced with new property” (Daily Mail):

A never-lived-in oceanfront mansion that quietly sold for $110 million last year is to be torn down and replaced with a new property.

The mansion, built in 2016 at 1071 N. Ocean Blvd, Palm Beach, is owned by a company linked to cosmetics billionaire William P. Lauder.

He owns an empty lot next door and is believed to want to combine both parcels of land before building his dream home, just six miles from former President Trump’s Mar-a-Lago.

The home was originally purchased for $40.42 million by Philadelphia businessman Vahan Gureghian and his wife, Danielle, an attorney, but they never moved in.

There is even room for a two-lane bowling alley in the basement – although it’s soon to be destroyed by the wrecker’s ball.

He purchased that lot, at 1063 N Ocean Blvd, for $25.4 million in April 2020 at which point he demolished the existing home which had stood there since the early 1960s.

(What kind of engineering was involved to make a watertight basement? Almost nobody in Florida has one.)

To make our envy even more intense, the article includes a photo of the dilapidated eyesore:

It is at times like these that I’m glad I voted for Bernie!

What does the guy who is throwing out a 6-year-old 36,000-square-foot house have to say about our beloved planet? A 2021 talk from the committed environmentalist:

During the pandemic, concerns about the environment have intensified and Lauder noted that, at this point, sustainability is no longer a choice for companies.

“We have to think about what we make and sell from cradle to grave,” he noted. “How can we get more recycled material in our packaging? How can we reduce the use of plastic and other components that end up in landfills?”

The entire house will go into a landfill, but that’s okay because very little of it is plastic?

It’s all about the Science:

Sustainability and science go hand-in-hand. Lauder said…

See also “Estée Lauder Companies Reaches Milestone Climate Goal, Net Zero” (2020):

The Estée Lauder Companies (ELC) announced on November 2nd that it has achieved Net Zero emissions and sourced 100% renewable electricity globally for its direct operations, reaching the target it set on joining RE1001.

Building upon this achievement, the company has also met its goal to set science-based emissions reduction targets for its direct operations and value chain, positioning the company to take even more decisive action against climate change in the coming decade.

The Estée Lauder Companies commits to reduce absolute scope 1 and 2 GHG emissions 50% by 2030 from a 2018 base year. This target is consistent with reductions required to keep warming to 1.5°C, the most ambitious goal of the Paris Agreement. The Estée Lauder Companies also commits to reduce scope 3 GHG emissions from purchased goods and services, upstream transportation and distribution, and business travel 60% per unit revenue over the same timeframe.

It was Science who said “toss that 6-year-old house into the landfill”!

So we started off sick with envy, but ended up learning something profound about the role that each of us can play in saving Spaceship Earth.

Update, 10/26: Government moves fast in Florida! The environmentalist got a demolition permit and the house is on its way to the landfill.

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Dramatic change in mortgage rates contributes to America the Static

by philg

As loyal readers are aware, when it comes to homeownership I am a hater. The culture of homeownership is a huge drag on the U.S. economy, in my view, for the following reasons:

  • homeowners spend a lot of time working as amateur property managers, e.g., arranging maintenance or actually performing maintenance, that is much more efficiently done 100-600 units at a time
  • the high transaction costs, e.g., 5 percent real estate commission, discourage people from moving in response to the availability of better job opportunities

(This is not to say that I hate the single-family home as a living space. But I would think we’d be way more productive as a society if our single-family homes were owned commercially and managed professionally or, at the very least, owned in a condo-style arrangement where we didn’t have to touch anything beyond the interior.)

The “high transaction costs” in the second bullet point above are now vastly higher due to 2022 having become the Year of Mortgage Rate Drama. Someone who locked in a 3% rate, either via an initial purchase or a refinance, is sitting on an annuity that ends the minute he/she/ze/they decides to sell the house and move closer to where the better jobs are, potentially eliminating all of the economic benefit of switching jobs.

“After Years of Low Mortgage Rates, Home Sellers Are Scarce” (Wall Street Journal, 9/22/2022):

Housing inventory has risen from record lows earlier this year as more homes sit on the market longer. But the number of newly listed homes in the four weeks ended Sept. 11 fell 19% year-over-year, according to real-estate brokerage Redfin Corp. That is an indication that sellers who don’t need to sell are staying on the sidelines, economists say.

Larry and Corina Lewis of Tarrytown, N.Y., have two children and expect to need a bigger home in the next few years. But their current 30-year mortgage rate is 2.75%.

“The thought of giving this up in order to pay double in interest, that’s a nauseating thought for me,” Mr. Lewis said. Even if the average mortgage rate falls from its current level, he said, “I still don’t see it ever getting quite that low.”

The lack of housing inventory is one of the major reasons home prices have remained near record highs, despite seven straight months of declining sales as interest rates have roughly doubled since the start of the year.

Economists say it is difficult to predict how much the increase in mortgage rates could reduce home listings, because rates haven’t climbed this rapidly in decades.

Related:

  • “More Residents Looking to Leave San Francisco Than Any Other Major U.S. City, Report Finds” (Mansion Global (sister publication to WSJ), 9/20/2022): Despite life returning in force to big cities across the U.S., residents are still looking to leave them, and in even greater numbers than they were last year … In July and August, residents of San Francisco were the biggest flight risk. All told, San Francisco had a net outflow of 40,432 over the two summer months, a measure of how many more Redfin users looked to leave the city rather than move to it. Next on the list was Los Angeles with a net outflow of 34,832, followed by New York at 26,786. Washington, D.C., and Boston rounded out the top five. [Other than extended periods of public school closure, what do these cities have in common?] Miami was the most popular migration destination, “continuing a year-plus streak of the South Florida metro taking the number-one spot,” the report said.

Speaking of South Florida, here’s a fan of relocation to Jupiter. Mindy the Crippler’s priorities for a neighborhood are squirrels, rabbits, squirrels, rabbits, and, more importantly, squirrels:

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The Case-Shiller housing bubble isn’t so bubbly if we adjust for rising rents

by philg

“Rising Home Prices Are Mostly from Rising Rents” (Kevin Erdmann) was sent to me by a retired bond fund manager. He starts by noting that the Case-Shiller real estate index, when adjusted for CPI (“real”), shows dramatic apparently irrational price swings. We go in and out of housing bubbles based on sentiment.

The problem with that theory is that rent inflation has definitely risen faster than general inflation for the past 40 years or so. So, instead of adjusting for inflation based on a reasonable theory that has stopped reflecting reality, why not adjust home prices with rent inflation instead of general inflation? When you do, it turns out that prices have become more volatile, but the deceptively compelling long-term flat pattern that suddenly jumps to a higher range isn’t so clear any more. Persistently high rent inflation is driving the rise in the “real” Case-Shiller index.

When the adjust-by-rent system is applied to individual cities, the purchase price of housing looks even flatter. Here the author generates smooth curves fit to data points from 50 metro areas. 2007 does look like irrational exuberance, but primarily in the higher-cost cities (even in 2007, in cities where rent was low, the buy/rent ratio was about the same as in 1991, 2012, 2015, and 2018).

Thanks to the miracle of population growth and the inability of Americans to come up with a cheaper way of building housing…

In Figure 8, we can see that prices are now rising in every city like they were in Los Angeles before. Low rates of building, with constrained lending, means that residents with low incomes are suffering from our policy choices now everywhere.

[Blaming “policy choices” is where I part company with this author, who talks about “systematic, persistent lack of housing production” as though that could be changed with the wave of a central planner’s wand. As I noted in City rebuilding costs from the Halifax explosion, even when land is free and there are no zoning restrictions, the basic cost of building an apartment now exceeds what a couple with two median incomes can afford (maybe the answer is that Americans need to live in throuples?). A simpler explanation is that we’re simply not wealthy enough, on average, to afford the things that we believe we deserve, including high quality housing for 333+ million people. We’re a medium-skill country, trending toward low-skill via our immigration system, demanding all of the stuff that properly belongs to a high-skill country.]

I’m not sure what we should take away from this as investors. The residential real estate market isn’t as irrational as previously portrayed. House prices, like apartment building prices, track rents. But how do we make money unless we have a crystal ball to forecast future rents? The friend who forwarded this to me said that historically real estate provides lower returns than investing in the stock market (but maybe this isn’t true if you consider leverage and the ability to stick lenders with the downside risk while keeping the upside benefit) and real estate ownership carries idiosyncratic risks, such as litigation risk (the owners of a hotel were hit for $26 million because a jury found that a clerk employed by the owners allowed a pervert to check in next to a sports journalist and film her naked (and that she suffered $55 million in damages from this, more than if she had been killed)).

As taxpayers one take-away is that we’re going to be paying the rent for a high percentage of our brothers, sisters, and binary-resisters who either don’t want to work or whose skills don’t yield a sufficient income for housing that we consider suitable for a resident of the U.S.

Speaking of real estate investing, you can’t go wrong by doing the opposite of whatever I suggest. My theory was that Cambridge, Maskachusetts real estate would go up in value once the Followers of Science abandoned their fears, masks, school closures, lockdowns, and vaccine papers checks. When everyone was back at his/her/zir/their desk in the office towers of Kendall Square or the academic buildings of Harvard Square, real estate in Cambridge would catch up to real estate in South Florida. The brilliant minds of the AI software within Zillow disagree, forecasting a down round for Harvard Square:

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When does the vacation home market collapse?

by philg

A combination of inflation and stock market saggage means that Americans aren’t as rich as we thought we were. When we thought that we were crazy rich (2020-2021) and it was illegal to buy a variety of services, such as international travel to most destinations, we loaded up on real estate. Now the collapse is forecast, partly due to sky-high interest rates that the Fed hopes will tame inflation despite the government continuing to borrow and spend $trillions more than is raised via taxation.

On the theory that “people need to live somewhere” and the U.S. population is being dramatically expanded via low-skill immigration (see “Modern Immigration Wave Brings 59 Million to U.S., Driving Population Growth and Change Through 2065” (Pew 2015), I don’t think prices for primary houses will go down in nominal dollars. Perhaps the values will be eroded by inflation, but I will guess that that real (inflation-adjusted) price of a house in 2027 is no more than 10 percent lower than today’s price. Americans are not competent at planning and building infrastructure and therefore new construction to accommodate the migrant-fueled population boom is going to be super expensive (see City rebuilding costs from the Halifax explosion).

On the other hand, an individual person or family does not need two houses. So if there needs to be a real estate collapse, I am thinking that it will happen in the vacation house market.

Arguments in favor of continued high demand for houses in vacation destinations:

  • the laptop class can pretend to work from anywhere
  • demand for ski resort lift tickets has never been higher (Smithsonian)
  • those who support lockdowns, school closures, masks, and vaccine papers checks are voluntarily traveling like crazy now, packing themselves into 100% full airliners, going to theme parks, etc.

Arguments against continued high demand for recently purchased vacation houses:

  • a second property tax bill every year
  • a second set of contractors to beg
  • rising maintenance and utilities prices

We rented a cozy cabin in the Great Smoky Mountains (report). Zillow says that the pre-Biden value of the 1,344 square-foot mansion was $350,000 and that it is currently worth about 725,000 Bidies, down from a peak of 763,000. It actually was sold by the builder, brand new, in August 2019 for $305,000.

We enjoyed being there for a few nights, but is it worth more than a townhouse within commuting distance of a highly paid job in a dynamic city? I don’t see how that is possible in the long run.

Related:

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Zillow’s inflation forecasts

by philg

From February 2022, when we were dumb enough to sign a contract to buy a house:

The market will go up 23%.

In April, when we were dumb enough to close on a house:

The market has gone up a little and will go up 18.3 percent more.

In June, Zillow is busy celebrating Pride Month (from 2020: “They’re bold, bright and one-of-a-kind — they’re the homes we love, Pride-month style. We may not be celebrating together in person, but we’ll never stop celebrating what’s beautiful.”), but the company’s robot still has time to say that the forecast is 14.6 percent:

August 5, 2022, the “typical home value” is up by a staggering amount and the forecast is 7.8 percent more:

August 14, 2022, the “typical home value” is still up (yet houses have seemingly been slow to sell for a few months now and there have been many price cuts) and, with the Inflation Reduction Act nearly signed by the vigorous Vanquisher of Corn Pop, the inflation forecast is down to 5.3 percent:

These forecasts aren’t mutually inconsistent. If we take the starting “typical home value” and inflate it by the forecast 23.1 percent increase we get $647,098 for the expected typical home value in February 2023. If, indeed, the current value is already $627,655, the forecast 5.3 percent inflation rate (to August 2023) will make that happen.

Do we believes these precise forecasts? If so, should Joe Biden ask Zillow to come in and take over the Fed?

Separately, speaking of house price inflation, it occurs to me that the capital gains tax applied to homeowners does not make any sense. Suppose that Dana Dentist, a gender-neutral driller of teeth, purchased a 4BR house for $500,000 fifteen years ago. Dana falls in love with someone he/she/ze/they met at a Pride March in another city. Dana sells his/her/zir/their house for $1.5 million (in 2022 mini-dollars) and buys an identical size/quality house in the new sweetheart’s city, which just so happens to cost $1.5 million. Dana is no better off. He/she/ze/they has exactly the same size and quality of house. Yet the IRS now hits him/her/zir/them for capital gains and Obamacare investment income tax on $750,000 (the first $250,000 of gain on a primary residence is exempt). There may be state capital gains taxes to pay as well if Dana did not live in Texas, Florida, or a similar state.

Note that this wouldn’t happen to a commercial property owner. If he/she/ze/they sold House 1, which had been rented out, and bought House 2 in order to rent it out, the sale/purchase would be done in a 1031 exchange and there would be no tax on the fictitious capital gain until, perhaps, House 2 was sold and not replaced.

What’s the downside of the Feds and states taxing fictitious capital gains? By making moving more expensive, the policy discourages people from moving for better career opportunities and, thus, reduces the overall growth rate of the U.S. economy (not as much as our family law system does, but at least to some extent).

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Cost of luxury high-rise construction in Florida

by philg

A neighbor is a refugee from the Land of Lockdown (Illinois) and is a partner in a real estate development company. “We decided to stop doing projects in Chicago because so many people were leaving,” he explained. He’s finishing a sold-out project of $4 million Florida beachfront condos that will be ready for occupancy early in 2023. It is on the site of a former hotel. What does construction cost right now for a luxury concrete high-rise? “It is $450 per square foot,” he responded. Three years ago? “Mid-$200s.”

Here’s a new one near us, which was planned starting at $4 million per unit, announced at $6-10 million, and has apparently been selling for up to $18 million for a 5,000-square-foot unit ($3,600 per square foot): SeaGlass, Jupiter Island (it is not in Jupiter, but in the next town up: Tequesta).

Some friends in northeast Florida will be moving into their new 3BR house soon. They bought it 18 months ago, which is when the developer began work on design and construction (theirs is a tweak to a standard design within the development). It will cost just under $1 million and is a 20-minute drive to the beach. The developer complains that, due to inflation, this particular house will actually be unprofitable.

Related:

  • City rebuilding costs from the Halifax explosion, from 2019, in which I describe an affordable apartment construction project in Boston. Even with free real estate, the construction cost of each unit ($555,555 per) rendered them unaffordable, without taxpayer subsidies, to a dual-income couple in which both of the partners (who will, one hopes, come in a rainbow of gender IDs) worked full time at the median Maskachusetts wage. Presumably that construction cost has now also doubled, but the median wage won’t have followed.
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Mighty brains of academia and non-profit figure out why Americans are homeless

by philg

There is a new book from some of America’s smartest people. First, the credentials…

GREGG COLBURN is an assistant professor of real estate at the University of Washington’s College of Built Environments. … Gregg holds a PhD and an MSW from the University of Minnesota and an MBA from Northwestern University. … Gregg is also a member of the Bill & Melinda Gates Foundation Family Homelessness Evaluation Committee and co-chair of the University of Washington’s Homelessness Research Initiative.

CLAYTON PAGE ALDERN is a neuroscientist turned journalist and data scientist based in Seattle. … A Rhodes scholar and a Reynolds Journalism Institute fellow, he holds a master’s in neuroscience and a master’s in public policy from the University of Oxford. He is also a research affiliate at the Center for Studies in Demography and Ecology at the University of Washington.

What have these mighty brains learned? From Homelessness is a Housing Problem:

the researchers illustrate how absolute rent levels and rental vacancy rates are associated with regional rates of homelessness.

The higher the rent, the higher the rate of people who can’t afford the rent:

In other words, we aren’t wealthy enough to build and maintain the housing to which we believe ourselves entitled.

Meanwhile, more than 200,000 people come over the southern border every month to claim asylum (US CBP stats) and common decency demands that, regardless of whether any can or do work, all be provided with reasonable quality housing. According to a book that I recently finished, The Swamp, there may be a limit to how many of these newcomers can come to South Florida. From a legal point of view, we can’t keep robbing the federally-protected Everglades of water. Our abuse of the animals who live there has some limits.

From a newspaper that passionately advocates for expanded low-skill immigration… “The Housing Shortage Isn’t Just a Coastal Crisis Anymore” (NYT, July 14):

What once seemed a blue-state coastal problem has increasingly become a national one, with consequences for the quality of life of American families, the health of the national economy and the politics of housing construction.

Freddie Mac has estimated that the nation is short 3.8 million housing units to keep up with household formation.

It is not an expanding population due to immigration that drives up prices in an Econ 101 supply and demand curve intersection, but rather inequality:

Other forces like widening income inequality also worsen housing affordability, said Chris Herbert, managing director of the Harvard Joint Center for Housing Studies. That’s because more higher-income households compete for limited housing (prompting builders to build high-end homes).

Our brightest minds are working on this:

The Biden administration also released a long list of ideas this spring for boosting housing supply.

The word “immigration” does not occur in this article.

Related:

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