Did Realtors Cause The Housing Crisis?

Last Updated May 6, 2010 9:02 AM EDT

I received the following letter via email from Caroline. Because I've received several email in the same vein, I'm posting Caroline's email here to generate some discussion as to where the blame should fall with regard to the housing crisis.

(If you read my post, Loan Modification Hell: Join The Club, you'll see who nearly 500 people feel should shoulder the blame for part of the housing crisis.)

Caroline feels that the Realtors (members of the National Association of Realtors) are to blame. Here's her email, which I've edited for clarity and typos:

Caroline's Email To Ilyce:

Ilyce:
I believe that one of the main reasons of the housing crisis in USA are the Realtors & brokers.
FOR THE BUYERS, THEY PERSUADE THEM:
  • This is the best time ever to buy a house
  • If you buy today you will wear diamonds tomorrow
  • That is the best house on earth is suitable for you
  • Believe me the houses prices is going up
  • The seller is stupid and don't know that his house worth more than what you will pay
FOR THE SELLERS, THEY TELL THEM:
  • This is the best time to sell your house
  • I have a better house for you
  • Your house is bad & the area is not so classy & the criminal rating is high
  • Believe me the houses [in your neighborhood] are going down in value
  • The buyer is stupid & your house worth less than their offer so it is a golden chance to come out ahead
It's a game my dear.
Realtors keep telling lies all the time, to both parties, only to get their commissions. And they push the prices up and up for no reason until the bubble explodes and we have now the worst recession in USA since the 1930s because of real estate agents.
You see the same phrases were being told to the buyers and sellers 3 years ago and we hear the same nowadays. And it seems we will hear the same till we die and inherit our next generation's debts instead of houses. I think it is time to wake up & realize what is in between the lines and what are the rules of this game.
Study this analysis:
  1. The USA is a continent, not only a country. We have too much empty land. Why do house prices rise?
  2. The population is still little compared with the land space. Why do the house values go up?
  3. The economy is sick, with a high unemployment rate. Employers cut hours, with no extra investments, etc. What is the economic reason for the prices to go up?
  4. The cost to build a house in USA is small compared with other countries such as Japan or Europe. Why do home prices rise more in the US than in these countries?
I hope to hear your opinion.

Ilyce's Response

Caroline, I believe there is plenty of blame to go around for the housing crisis. But to single out the Realtors for the mess misses what was really going on.

Sure, some Realtors have pushed their buyers to spend a little more, because they know that buyers' income tends to rise, and this way, they'd have a house that's the right size for the long term. They also work with investors who are looking for the quick flip.

But great real estate agents don't lie, tell tall tales or steer home buyers to a house simply to get them to buy something. In my experience of watching Realtors (including my mother, Susanne Glink), over the years, this doesn't happen all that often. (I'm not saying it never happens. As a real estate writer for more than 20 years, I've heard stories that would make your hair stand on end.)

Still, your "analysis" seems to leave out the banks, mortgage brokers, and appraisers who contributed to the crisis.

Mostly, it leaves out homeowners, many of whom treated their rising home equity like an additional annual salary waiting to be spent. It seems to me that there's some culpability for everyone involved in the process when a home buyer who earns $50,000 finds a lender who will give him a $500,000 no doc mortgage for the $500,000 house he can't really afford.

Readers, what's your take? Is Caroline right? Did Realtors cause the housing crisis?

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com.
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    Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.