Its Time For The Realtors to Share the Pain

Something occured to me last night when I heard that the National Association of Realtors was pushing for a plan to have Fannie Mae and Freddie Mac (the Government) work to produce a plan whereby new homebuyers could get 30yr fixed loans at somewhere between 4 to 5%. Before I tell you, a slight digression on this suggestion is in order.

First, this plan touches what I feel is the main issue - a glut of homes, but the manner in which they suggest it and the source from which it comes is both unrealistic, harmful, and more greedy and self-interested than anything the U.S. auto industry could concoct for themselves. Believe me, that is saying something!

First - the manner in which it was suggested was somehow leaked such that it could be mis-construed as an actual plan from Treasury. This confusion is simply wreckless at a time when banks are trying to dip their toes back into the water with lower rates for new mortgages. The Fed lowered rates to give them another nudge, but by saying the government is going to buy mortgages through the maligned bellweathers of this crisis at rates more than 200 basis points below the current market is ludicrous. This sends a message to any private money interested in buying these mortgages that they should stop, take 2% less and get a sudo-treasury at a time when the 10 year t-bill is being bought so feverishly its yield is below 2%. Nice trick, but this is the opposite of helping the banks get back to responsible lending precisely because its an artificial subsidization of the mortgage market which makes them unable to compete. Why give them money, then make it impossible for them to profitably invest it? Worried banks are hoarding the bailout TARP money - do this and you'll assure it and only because you're wrecking their market! Think I'm siding with the banks? Well, if 30yr rates went to 4.5% - it would be the lowest in almost 70 years.

Now, if you believe the plan is ridiculous, now see where it came from - the realtors. I'll be short but incisive here - have you seen ANYTHING from the national realtor association saying they'd be willing to lower commissions by 50% for the next year to entice people to sell rather than walk away? I sure as hell haven't. Lets put this idea in perspective to normal people - selling a home using a realtor entails a typical 6% fee. on a $200K home - that is $12000 - not exactly chump change! If this were cut to $6000 (3%) it would effectively cause the price of home declines to instantly increase by 3%!!!! Considering we're dealing with a national decline average of 10% - this change would reduce this number and accelerate the adjustment and increase the volume of homes sold immediately!

I work in the retail industry and when demand flags we see retail cuts and cost cuts. We share in the cuts, and it helps in increasing volume. Its time the realtor industry joined in this - don't cry about the lack of homebuyers - cut your commissions and put it on the sellers price or toward closing costs in a transparent manner and you'll be amazed. As our customer says in my industry - you'll make the cost reduction up in volume. Time to get on board.