Shill or Schlimazel?

Is Barry Ritholtz Right About Realtors?

"$#@%&realtors . . .%&*!! NAR . . !!#%@!! . . David Lereah . . .$#%&! . . . NAR . . . %&!!@realtors . . .%&*!! NAR."
--"Former NAR Economist David Lereah is a Jackass," Barry Ritholtz; The Big Picture blog (1/6/09)

As a real estate agent active in the Twin Cities housing market, I find Barry Ritholtz's latest anti-realtor rant to be offensive. Perhaps more to the point, Ritholtz is also fundamentally wrong -- and more than a little unfair (if not unjust).

Blaming realtors for the direction of housing prices is like blaming physicists for gravity, or weathermen for . . the weather.

Of course, the housing and credit debacle wasn't an act of God, but very much man-made. Which men?

Let's see . . .

--Who designed the securitized debt juggernaut that rained hundreds of billions in phony profits on Wall Street firms and their extravagantly paid leaders?

--Who rated trillions in such securities "Triple-A," making them palatable to investors and banks world-wide?

--Who led Wall Street's effort to get the SEC to relax leverage limits on investment banks, allowing them to bet $30, $40 or more for every $1 they put up? (Hint: his name rhymes with "Schmaulson," and as Treasury Secretary he's been using A LOT of your money to plug holes in his former company's balance sheet.)

--Who dropped interest rates to near-zero in 2002, then dismissed concerns about the consequences of easy money and excessive debt?

--Who put millions of marginal borrowers into nothing-down, toxic mortgages that acted as kindling to Wall Street's conflagration?

Unlike Ritholtz, I don't see realtors' fingerprints on any of the above.

If Ritholtz is right that realtors somehow enabled the housing market bubble, how does he explain housing's relatively modest appreciation the preceding 20 years?

What caused realtors to suddenly become Pied Pipers beginning in 2002, seemingly able to convince Buyers to throw caution to the wind and load up on real estate, no matter the price?

Maybe there was something else afoot. Hmm, I wonder . .

Shill or Schlimazel?

From my vantage point, realtors look a lot less like culprits or even accomplices in the housing mess, and more like something else: "schlimazels."

For the uninitiated, a "schlemiel" is traditionally defined as the guy who trips carrying a bowl of soup back to his table; the "schlimazel" is the hapless guy whose lap it falls into.

When it comes to Wall Street and the current financial melt-down, we're all schlimazels.

To date, millions of Americans have lost a big chunk of their retirement savings, their home equity (if not homes), and now possibly their jobs.

Professionally, however, realtors not only are the group suffering the most financially, but the ones bearing the brunt of the clean-up.

Consider:

•At the market peak, in 2006, the average realtor made less in a year -- about $35,000 -- than some investment bankers made in a day. Of course, since then housing sales volume and prices have spiraled downward nationally, reducing realtor income by almost 50%. In the worst economy in decades, realtors by the tens of thousands are being forced to look for jobs in other fields.

•The housing deals that are being done now are disproportionately "lender-mediated," i.e., foreclosures and short sales.

Cleaning up a spilt bowl of soup is a snap compared to cutting the Gordian knot that these deals present. In the case of short sales, getting the mortgage holder's assent to reduce the principal owed can require getting approvals from no fewer than 15-20 lenders, who all took a thinly sliced piece of the deal (thanks, Wall Street).

That's just one reason such deals are slow, complicated, and, for realtors, anything but lucrative (see, "Foreclosure Headache #7"; "Short Sale Hurdles").

Personally, I think of handling short sales and foreclosures as the realtor equivalent of combat pay -- minus the pay. Yet until millions of these homes are absorbed, the real estate market is unlikely to stabilize and eventually recover. And until that happens, neither will the economy.

Maybe someone should put out a bumper sticker reading, "Be Nice to Your Realtor."

•So how are Wall Street's schlemiels faring? Very nicely, thank you.

To pick just one, especially incendiary example: the $10 billion in TARP money handed to a single firm, Goldman Sachs, comes to about $10 million per partner. Aside from the bailout money, Wall Street stands to collect billions in fees helping Washington fix the mess it made. Schlemiels, indeed.

While many realtors are maxing out their credit cards or looking for new jobs, Wall Street's unwise men are anything but broke. As Michael Lewis puts it, "why on earth should Stan O'Neal (Merrill Lynch), Chuck Prince (Citigroup), and Jimmy Cayne (Bear Stearns) still be walking around with billions of dollars that they never should have been paid in the first place?"

The criticisms lodged by Ritholtz and others at realtors are hardly new ("Do Realtors Really Add Value?"). But they do beg the question: if realtors are nothing more than shills or hustlers, as Ritholtz asserts, why do consumers trust (and pay!) them to handle almost 90% of all residential housing transactions?

That seems especially perplexing in an age when information about homes is both ubiquitous and free, and advancing technology has not exactly been kind to other middlemen (travel agents, stock brokers, bank tellers, etc.).

Perplexing, of course, unless realtors actually add value.

If only the same could be said of Wall Street . . .