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The DOJ versus NAR: What comes next?

DOJ vs NAR
by Brad Cartier, posted in Newsletter

In November 2020, the Department of Justice (DOJ) announced an antitrust lawsuit as well as a settlement with the National Association of Realtors (NAR). The lawsuit revolved around NAR and its affiliated MLS groups violating the Sherman Antitrust Act by limiting free trade. Basically, high commissions and a monopoly over listings.

To situate our thinking, a report this week from Knock highlights the growing commissions of real estate agents across the U.S. This year, agents are projected to earn a total of $104 billion in commissions, up from $90 billion in 2020. This will be a recording-breaking year if this trend continues.

Total agent commission projections by year - Knock

Source: Knock

Michael Toth of The Wall Street Journal (subscription required) reports this week that the DOJ backed out of the settlement proposal with NAR, which was aimed at taking a look at the high commissions consumers pay agents. Reportedly, never have federal antitrust authorities agreed on a settlement, only to back out.

According to Toth,

“The real-estate lobby called the move “an unprecedented breach.” But there’s a much larger concern for legacy brokers than the novelty of the about-face. The signal from Washington is that antitrust enforcers are prepared to dismantle the collusive practices that burden U.S. homeowners with brokerage costs two to three times as high as in the rest of the developed world.”

Yikes. In the announcement on the withdrawal from the settlement, the Consumer Federation of America (CFA) noted that:

“The key barrier to price competition is the NAR’s buyer broker commission rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation to participants in the MLS. This rule institutionalizes a very strange and anti-competitive method of broker compensation. Sellers and their listing agents decide the commission to be paid to the buyer broker working with the home purchaser. Buyers not only cannot negotiate this commission but usually are not aware of its level because buyer brokers either do not discuss it with them or inform them that it is paid by the seller.”

The CFA concluded their comments by noting that “there is some circumstantial evidence to suggest that the NAR cut a deal with Trump officials to undermine the lawsuit.”

Mortgages update

Tim Glaze of Housing Wire reports on mortgage data showing that mortgage applications have fallen again, the third straight week of declines. This is the lowest mortgage application level since January 2020. Joel Kan, Mortgage Bankers Association Associate Vice President is quoted as saying, “Treasury yields have been volatile despite mostly positive economic news, including last week’s June jobs report, which showed ongoing improvements in the labor market…However, rates continued to move lower, especially late in the week.”

According to Glaze, the average interest rate for 30-year fixed-rate mortgages decreased to 3.17% from 3.19% last week. Also, Chris Jennings of Fox Business reports on the 20-year rate, which dropped to 2.5%, its lowest level in five months.

Black Knight also released their June 2021 Origination Report, noting that “with record-breaking home price appreciation, jumbo lending continues to rise at the expense of conforming loan market share, which is down nearly 750 basis points from last year. With rates holding steady and purchase lending strong, additional growth in home prices may extend this trend further.”

Lisa Rizzolo of CNBC reports on the fall in mortgage applications, noting that refinances dropped 2% last week, and were 8% lower than this time last year. This is happening despite declining interest rates.

Lumber vs concrete and steel construction

Even with record increases in lumber, builders are still choosing wood construction over concrete or steel. But first, Marcy Nicholson of Bloomberg (subscription required) reports that lumber prices have now dropped 50% since hitting their record highs, but are still historically high.

Lumber prices as of July 2021 - Bloomberg

Source: Bloomberg

Nicholson notes that “historically high prices for lumber threaten to keep housing costs high in North America for the foreseeable future.”

In a recent survey, the National Association of Home Builders (NAHB) stated that “wood framing remains the dominant construction method for single-family homes in the U.S., accounting for 91 percent of new homes completed in 2020…few builders were reporting a recent switch, or inclination to switch, away from traditional wood framing methods.”

In a separate article, NAHB reports that

  • There were 831,000 wood-framed homes completed in 2020 (a 2% gain over the 2019 total).
  • Steel-framed homes are still uncommon, with a total of just 5,000 completions in 2020, but up from 3,000 in 2019.
  • Concrete-framed homes experienced a decline in 2020, decreasing 13%.
  • That said, from 2010 to 2020, the concrete-framed market share increased from 5% to 8%.

In an excellent analysis piece on why lumber prices are still high, check out David Logan’s article titled, Why Builder Lumber Prices Remain Higher than Headlines Suggest.