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Thomas Brown, Whitney McCollum, Jul 10, 2008
Oh how times have changed. Two years ago, when one of us last sat down to write about antitrust and the residential real estate industry, housing prices were rising around the United States. Some cracks had begun to appear. In particular, default rates on newly issued sub-prime mortgages seemed unusually high. But most observers expected the run-up to continue, and the likes of Merrill Lynch, Bank of America, and Wachovia had just revealed or would soon reveal deals seemingly predicated on the continued expansion of the business.
Today, of course, the U.S. residential real estate industry is in a tailspin. Prices for existing homes declined over ten percent nationwide between January 2007 and January 2008. Construction of new homes has sunk to levels not seen since Ronald Reagan was President. The value of the loans, CDOs, and securities written on the assumption that U.S. housing prices would continue to increase has been wiped out. The swift and sudden decline in housing prices has toppled one once formidable investment bank and pushed the likes of Citibank to travel the world in search of capital. The ripples from this unprecedented decline in U.S. housing prices (at least for those who forgot what happened to housing prices during the Great Depression) have pushed the U.S. economy, perhaps even the global economy, to the brink of recession.
Through the good times and the bad, the U.S. Federal Trade Commission and the U.S. Department of Justice have pushed an antitrust enforcement agenda designed to reform the industry. In 2005, the DOJ’s Antitrust Division sued the National Association of Realtors. The FTC followed suit in 2006 by issuing a series of complaints against a number of real estate groups. Although they challenged slightly different policies, both agencies claimed that they were suing to protect new types of competition that had been stoked by the distribution of real estate listings over the Internet.
With the passage of time, the cases have progressed. The DOJ’s Antitrust Division has announced a settlement with the NAR that gives it most of what it sought when it filed suit. The FTC, on the other hand, has suffered a setback. It lost the first round of litigation before an administrative law judge. These outcomes, even if the full FTC eventually reverses the initial decision, provide an opportunity to take another look at antitrust and the residential real estate industry in the United States and to see whether the current enforcement agenda seems likely to achieve the stated goal of reducing the prices that consumers pay for real estate brokerage services in the United States. We are skeptical.