Did Real Estate Agents Contribute to the Housing Bubble Burst?

If you were buying or selling a house (or in my case, both) in the last few years, you are familiar with the term ‘housing bubble’. If you are trying to sell a house today, you are most likely feeling the effects of its ‘burst’. But for some reason, when you try to locate a clear definition by doing a Google search (i.e. “define: housing bubble”), the resultant page proudly declares: “No definitions were found for housing bubble.” Can you believe that? American homeowners are feeling the effects of a term that has been used at least since May 31, 2005, when we were warned of its potential collapse on The NBC Nightly News with Brian Williams in a story by Chief Environmental Correspondent, Anne Thompson. The term was broadcast to tens of millions of households in America, remains in common speech, yet in the matrix of the country’s biggest algorithm, there is “no definition”. Wow.

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So who, or what, is responsible for the housing bubble? Why did it occur? I did a web search to see what other people were thinking about the subject Adani Group Chhattisgarh . I found that people are talking about the housing bubble burst, blaming the lending industry, the Federal Reserve, the government, zoning laws, teacher’s unions, and even the weather. But I found little discussion about what caused the actual housing bubble itself in the first place. And so I ponder…

The first time I heard the term “housing bubble” was from a real estate agent in early 2004 as I inquired about purchasing an investment home. At that time mortgage interest rates were low, mortgage brokers could create special programs to fund mortgages, and much of the real estate around me was being listed at continuously higher prices. Real estate investors were in a house flipping craze and new homebuyers were qualifying for home loans at record rates. The housing market was a real estate agent’s dream. My real estate agent, anxious to make a quick sale, told me that I better not wait too long before I decided whether or not I was going to purchase the property I was interested in. She told me “the housing bubble has been blowing up for a couple of years and it won’t be long before it bursts.” I gave her a slightly confused look as she continued, “If you got in when the getting was good, you invested in property between 2002 and 2003. Investments were cheap to buy and easy to sell. The appraisers are helping us out with home values and the lenders are funding the loans. Homes are being sold at good prices today, but they are not going to hold their value for too much longer. The bubble is bound to burst. All good things must come to an end.”

A real estate agent is the first to introduce me the ‘housing bubble’ term. Is it possible that real estate agents also had some hand in causing the whole housing bubble effect in the first place? When real estate agents sell homes, they are paid a commission. Although the average commission is currently 5%, it is down from 6% which was the average rate from 2002 through 2005. The higher the price of the home that sells, the more the commission that is paid. According to a recent study by Standard and Poors, home prices increased the most between January 2004 and December 2005. Now remember, lenders are lending more money to more people. A 6% commission for a home priced at $249,000 is $14,940. A 6% commission for the same home priced at $279,000 is $16,740. The difference is an additional $1,800. If loan funding is not an obstacle, why wouldn’t real estate agents advise sellers to sell high in order to make more commissions?

If you think about it, real estate agents always advise sellers of listing prices, and most times those listing prices are based on the current state of the lending industry. If agents are noticing that more borrowers are being approved to borrow more money, they are going to encourage sellers to sell high. Of course, they will tell the seller that they can “take advantage of all the equity in the home” by selling high, but in the end, the higher the sales price, the higher the commission. Do you remember between 2003 and 2005 when becoming a real estate agent was a booming career? Now many licensed real estate agents have other “day jobs” because homes are not selling as frequently, or as pricey as they used to. I believe real estate agents definitely contributed to the cause of the housing bubble, and now they too are feeling the effects.

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