TheEconomistFebruary 15th 2020 611F
rom far enough away most houses
look the same. At cruising altitude over
Dallas, Los Angeles and even much of New
York, most dwellings are nondescript:
beige- or grey-roofed, laid out in neat pat-
terns. In sunnier climes the monotony is
punctuated by the bright turquoise ob-
longs of swimming pools. When it comes
to valuing a home, though, the details mat-
ter. The site, square footage, number of
rooms, the finishing and a thousand other
factors determine whether a home is worth
$200,000 or $2,000,000.
For this reason real estate has long been
a fragmented, local market. There are 2m
estate agents in America, according to the
National Association of Realtors (nar),
just over 1% of America’s workforce. An
agent does a number of tasks—appraising
houses, marketing properties, organising
tours—for a handful of transactions each
year. An agent might dominate the marketin a single neighbourhood—a few streets in
Beverly Hills, say. But zoom out to Los An-
geles and its sprawling suburbs and his
market share quickly drops to nearly zero.
Real estate is the biggest asset market in
the world. The value of residential property
in America—at around $34trn—rivals the
market capitalisation of all listed Ameri-
can companies. Throw in commercial and
retail property, together worth around$16trn, and its value easily eclipses that of
public firms. For decades the market has
been characterised by low volumes and ex-
tortionate transaction costs (see chart on
next page). Just 7% of American homes
change hands each year. Homeowners
traded property worth $1.5trn in America in
2019, forking over some $75bn in commis-
sion to agents, or around 0.4% of gdp. The
fees for trading many other financial assets
pale in comparison. Around $40trn-worth
of stocks are traded annually in America.
The fees paid by institutional investors to
brokers have halved from their peak, to less
than $10bn.
On top of the brokers’ fees paid to sell a
home in America, which amount to 5-6% of
the price, other levies—government taxes,
mortgage fees—mean that the total cost of
moving exceeds a tenth of the price. The ex-
pense could help explain why owners are
staying in their homes for longer. In the
1950s, 20% of households in a county
moved each year. Today 9% do.
This antiquated model is on the verge of
being disrupted. In America rules on com-
missions and data-sharing have so far kept
fees higher than in other rich countries.
But now regulators and courts are consid-
ering again whether practices in the real-
estate industry are anticompetitive.
Technology also promises to makeReal estate in AmericaTearing down the house
DALLAS, LOS ANGELES AND SEATTLE
Technology is at last poised to upend the world’s largest asset marketFinance & economics
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