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."