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News Flash: Realtors Hate Levitt

About a year ago, we wrote this article about how real-estate agents would seem to be an endangered species. The article included an interesting piece of research (by Chang-Tai Hsieh and Enrico Moretti) which showed that even during a real-estate boom, the typical agent doesn’t make a whole lot of money. Why not? Because the barriers to entry are so low that a hot real-estate market is soon flooded with new agents, who cannibalize existing agents’ profits.

This theory would predict that when the market cools, the number of agents falls. Indeed, that’s what’s happening now. This Wall Street Journal article describes the trend nicely:

When David Lereah, chief economist of the National Association of Realtors, addressed the group’s convention in New Orleans in November, he got one of the biggest bursts of applause by predicting there would be fewer Realtors around in a year. Mr. Lereah said in an interview that he expects membership in the trade group to decrease by about 6% to 8% from the record of nearly 1.4 million reached in 2006.

But enough about the data. Let’s get on with the mud-slinging. A recent edition of Realtor magazine listed the industry’s “25 Most Influential Thought Leaders” and then, separately, “15 Others Who’ve Had an Impact.”

This second list is chock-full of economists. Ben Bernanke gets a thumbs-up from the Realtors because he “called at least a temporary halt after 17 straight rate increases that have troubled real estate buyers.” The Realtors zing Robert Schiller for his “failed bubble scenario” which “demonstrates that sometimes even smart guys get it wrong.”

But the Realtors seem most unhappy with our own Steve Levitt:

Why: Contends in his 2006 best-seller “Freakonomics” that real estate practitioners work harder for themselves than for their clients.

About the nicest thing Steven D. Levitt and coauthor Stephen J. Dubner, a New York City-based journalist, have to say about the real estate industry is that the Internet will soon push practitioners onto the endangered species list. Their study of the economic impacts of various social phenomena also asserts that real estate sales associates sell clients’ homes faster and at prices 3 percent lower than they get for their own properties. The Harvard University graduate has become the darling of the media and academia for his arcane links between social trends, such as drug dealing and abortion, and economic outcomes. They don’t call economics the soft science for nothing.

My response:

1. Thanks, Realtors, for continuing to publicize our book.

2. Does anyone besides me see anything a wee bit comical about the National Association of Realtors making fun of Levitt and economics as “the soft science”? Brings to mind a certain pot and kettle I once knew …