SYLVIE DOUGLIS, BYLINE: NPR.
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SALLY HERSHIPS, HOST:
This is THE INDICATOR FROM PLANET MONEY. I'm Sally Herships, in for Stacey Vanek Smith. And I'm here today with Darian Woods. Darian, what do you have for us?
DARIAN WOODS, HOST:
So I've been talking to Sonia Gilbukh, an assistant professor at the City University of New York, about this looming problem that we could be facing in the housing market.
So are there too many real estate agents?
SONIA GILBUKH: Yes.
WOODS: OK. It's a simple answer.
GILBUKH: Definitely yes.
WOODS: Often, economists equivocate. They say, on the one hand, on the other hand.
GILBUKH: Yes. I think this is a rare scenario where I only have one hand.
HERSHIPS: OK. So Sonia is very clear that this is a problem, but how big of a problem is this, Darian?
WOODS: It's big. I mean, we're not talking just like a few agents too many. It's gotten to the point where there are more real estate agents than actual houses for sale in the U.S. At any given day, you're likely to see about half a million homes for sale. And there are 1.5 million members of the National Association for Realtors - three times as many.
HERSHIPS: That is a lot of real estate agents.
WOODS: And this isn't just a problem for real estate agents, Sonia says. As we'll explain after the break, too many real estate agents selling homes can make downturns worse for the entire housing market.
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WOODS: Kay Thompson (ph) buys and sells houses for her clients, but during the Great Recession in 2008, 2009, she was looking for a bargain to buy for herself. She was eyeing up an investment property on the side.
KAY THOMPSON: I've spent my life being pretty good at getting what I want.
HERSHIPS: Her strategies were merciless, like a wolf of Main Street. She's based in Memphis. And she scoured through the public records for houses that were on the brink of foreclosure. The market was in freefall. She found a house that had recently been bought for $100,000 just before the housing downturn.
THOMPSON: So I was hoping to get it for like half that (laughter).
WOODS: So something around 50.
HERSHIPS: So Kay drove to the address where this woman answers the door.
THOMPSON: When I went to her door, she just said, oh, my God, you know, God must have sent you to me because I don't know what to do.
HERSHIPS: This woman told Kay that she was now having some pretty serious problem paying for her mortgage.
THOMPSON: She lost her job. She was a single parent. And so she really just was in a pickle. She didn't know what to do about any of it.
WOODS: This woman still owed her bank $86,000, so every month she was scrambling to make mortgage repayments on a house that was worth less than what she owed. And Kay started rethinking her scheme to buy the house at a fire sale price from somebody desperate.
THOMPSON: I'm a single parent myself with a daughter. I just couldn't, you know, I was just like, this isn't the right thing to do.
HERSHIPS: So Kay took off her wolf's clothing, and instead she put on her real estate agent's jacket. She laid out the woman's options. She could help her sell her house, put it on the open market.
WOODS: There was a real chance that the home just wouldn't sell at all. Even in normal times, many houses just stay on the market without selling. It could also sell for less than what the woman owed, but it could be enough to avoid a foreclosure.
THOMPSON: She said, let's try it. I don't know what else to do.
HERSHIPS: And if Kay didn't have experience, she could mess up the sale - little mistakes like not setting up proper staging for photographs, not listing in the right magazine, or just having a thin network of buyers.
THOMPSON: A lot of agents will get lost. No one teaches them about sales. No one teaches them negotiation. No one teaches them really to read their market.
HERSHIPS: And an inexperienced real estate agent in this situation wouldn't just be missing out on a good commission. They would be potentially pushing this woman into foreclosure - an auction by the bank - which would have really bad consequences for her ability to borrow in the future. And she could also still owe the difference between what the bank sold the house for and what she still owed.
WOODS: This kind of situation is at the heart of what the economist Sonia Gilbukh analyzed. She recently put up a working paper on this with co-author Paul Goldsmith-Pinkham. And the problem starts when house prices rise.
GILBUKH: There's a house price boom that attracts more real estate agents into the market.
HERSHIPS: We're seeing this right now. The number of real estate agents has shot up 7% over the last year. And new real estate agents aren't as good as experienced ones. A new real estate agent was 10 percentage points less likely to sell a house at all than an experienced real estate agent.
WOODS: And this gets really bad during a downturn.
GILBUKH: Many people who weren't able to sell, as the prices dropped, they found themselves underwater. And if you're not able to pay your mortgage, and you can't sell your house, that means that your only option is foreclosure. That creates these sort of snowball effects.
WOODS: Sonia says the cycle goes like this. House prices go up, attracting a whole bunch of people who join the industry and become real estate agents. The market then falls for whatever reason. And then you've got a bunch of newbies, these people who are unable to sell people's houses. Those houses go into foreclosure. And it doesn't even stop there.
GILBUKH: As there are more foreclosures, the house prices keep dropping even more. So that exacerbates the cycle.
HERSHIPS: In short, the new real estate agents deepen the housing slump. This woman selling her house, she got a lucky break. She got Kay Thompson. She could have gotten a fresh-faced beginner agent knocking at her door because it is incredibly easy to become a real estate agent in the U.S.
WOODS: In some states, coursework requirements can be as low as 40 hours total. Sonia wondered if too many real estate agents now could be sowing the seeds for a deeper housing decline later.
GILBUKH: If we do have another downturn and all these new agents are already here, we might see the repetition of the scenario that we saw play out in 2008.
HERSHIPS: And to avoid that scenario from the housing market collapse of 2008, Sonia has one potential solution - make it harder to become a real estate agent, increase the number of steady hours required, or make the fee for a license higher.
WOODS: And I'm going to be honest, like, as a good economics student, this was kind of a hard idea to warm to. Like, the more competition we have, the better, right?
HERSHIPS: Yeah, that is the whole idea behind a free market.
WOODS: And we've heard all these stories about people wanting to become florists and hairdressers but having to go through really long and expensive training. But Sonia says reducing the number of foreclosures would be a good thing. It would mean that when you're selling your house, you'd be more likely to end up with an experienced person like Kay Thompson, the real estate agent in Memphis.
HERSHIPS: When Kay was trying to sell the house, the one that was almost in foreclosure, she did what she does best. She calculated the cost of repairs that would be needed. She projected the property's potential rental income. And she went through her strong network of possible buyers. And pretty soon, she landed on an interested buyer.
THOMPSON: He just thought this property will be a great long-term investment for me. I would be able to rent it out and give someone else the opportunity to live in a great neighborhood.
WOODS: And within just seven weeks of that first meeting on the doorstep, Kay drove to this woman's house to get the papers signed.
THOMPSON: And so I brought her a purchase and sale agreement. And when she saw that it was what she owed, she instantly cried. I think she hugged me for like 10 minutes. It was very surreal. And it was - I was overjoyed because she was so overjoyed. She said, God has answered my prayer. I will be able to move on from this house. And when I leave, I won't have to think about Memphis again. That's exactly what she said (laughter).
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HERSHIPS: This episode of THE INDICATOR was produced by Sam Cai, with engineering by Gilly Moon. It was edited by Dave Blanchard. THE INDICATOR is a production of NPR.
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