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Forward guidance is brought to you by VanEck,

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a global leader in asset management since 1955.

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You'll be hearing more about a VanEck ETF

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later on, but for now, let's get into

0:09

today's interview. I

0:15

am joined by Jack Ryan,

0:17

former investment banker, businessman, and

0:20

founder of Rex Homes. Jack,

0:22

it's wonderful to see you and

0:24

meet you. You've got a storied

0:26

career. You spent over 20 years

0:30

at Goldman Sachs. You were a partner

0:32

there when it was still a partnership,

0:34

still a private company. You

0:37

ran a Senate race against Barack

0:39

Obama in 2004. There's many interesting

0:41

things from your life, Jack, that

0:43

we could talk about, but we're not going to talk about

0:46

any of that. I want

0:48

to ask you, you also have sued

0:51

Zillow, the National Association

0:53

of Realtors, and Trulia. I got

0:55

to ask you, why

0:58

did you sue them? What did these real

1:00

estate institutions do that you perceived

1:02

was wrong? I think this

1:05

might be interesting to your listeners.

1:07

The residential real estate business in terms

1:09

of the agency brokerage business is what

1:12

I say, and I can bring the

1:14

data, the largest cartel in the US.

1:17

It sounds like I'm overstating things or exaggerating

1:19

in some way, but I'm really not. Ask

1:21

yourself this question. Why is the fee always

1:23

5.5%? Whether it's a $300,000 home,

1:28

a $3 million home, or a $30 million home, what's the

1:30

fee? 5.5%. What's the fee, even

1:35

though every other internet

1:38

intermediary, they've

1:40

been, I guess, disintermediated by the web. All

1:42

their fees are down 89% taxi,

1:45

dispatchers, stockbrokers, et cetera. One

1:48

isn't. Why is that? Why

1:50

is it the same fee in a good economy or

1:52

a bad economy? Why is it the same fee with

1:54

its Austin and Detroit? Why is it the same fee

1:56

with the first year associate or a 30-year veteran? you

2:00

know, or any law firm, the people who

2:02

were junior weren't compensated as well as people

2:04

who were senior because they have more rest.

2:07

They know they're doing better. Right? It's always

2:09

the same fee. But probably the most damning

2:11

thing is the fact that in a developed

2:13

country. The fees

2:16

are 80% less in

2:18

the UK. It's one and a half percent

2:20

in Sweden, Finland, Asia, Hong

2:22

Kong, Singapore, Malaysia. Why is it

2:24

then the US? The fees are

2:27

three or four times higher. Than

2:30

most other places in the developed world. And

2:32

so I won't, I won't bore your listeners

2:34

with all the other data, but when you

2:36

see this levitation act on prices that

2:39

defies time that

2:42

defines geography, defies geography,

2:45

that defies talent levels. It's always the

2:47

same fee. You know, there's a price

2:50

fix and it's a

2:52

price fixed on $3 trillion of

2:54

trades per year. And

2:56

now speaking with, you know, golden stacks

2:58

of brokerage, our goal, but

3:00

it's not, it's, you know, 4% is

3:04

the difference in the UK and the US. Let's

3:07

just assume for a second that

3:09

we've only charged the same as the UK, but it

3:11

should be lower because of economies of scale in the

3:13

US. Like almost every other service is in the US.

3:15

Let's just, let's just match it with the UK price.

3:18

It's 4% on frequently in the transactions

3:20

per year. So

3:22

it's huge $120 billion of

3:24

taking every single year, bigger than OPEC.

3:28

It's a, why are we doing

3:30

it? Because we, you know, why am we

3:32

doing because we, we, it's not right for

3:34

consumers. It's not right for homeowners. It's not

3:36

right for the US economy. Wasn't right for

3:38

racks because we were doing the same thing

3:40

that we did at Goldman, bring the brokers fees way

3:42

down by 90%, which can be

3:44

done. Except for the

3:46

rules of the cartel that prevent that. So

3:49

the National Association of realtors NAR

3:52

is a cartel in

3:54

stock broking. Yes. It's basically

3:56

now free to execute

3:58

trades. trade has

4:00

gone down and down and down. And if

4:02

I want a haircut, I could get a

4:05

cheap one that costs you know, 15 bucks,

4:07

just a buzz cut. There's a

4:09

much more expensive option. But in the world of

4:11

real estate, five and

4:13

a half or 6% of every transaction

4:15

goes to the real estate agents, the

4:18

selling agent and then the buying agent. And

4:20

it's a little complicated, you know, I've never

4:22

bought property myself. So you can guide me

4:24

and our viewers through it. But why is

4:26

it that pretty much every transaction

4:28

that happens, the seller

4:31

and the buyer and agent share 5.5% of

4:34

every transaction? Well, Jack, it's complicated for

4:36

a reason. It's because we have a trade group setting

4:39

the rules of competition. They

4:42

want to put all these rules in place. By the way,

4:44

no other trade group in the US is allowed to set

4:46

the terms of competition. Why should this one be allowed to?

4:49

It's important to fact. So on its

4:51

own two feet, it's anti-competitive, just

4:53

the very nature. And then you ask a

4:55

good question. Why, you know, it's really complicated.

4:58

You're saying this Jack, a really smart guy.

5:00

We have the data to prove you're really smart

5:02

guy. And it's confusing you. Why

5:05

is it confusing Jack Farley? Because

5:07

it's designed to be complicated by

5:09

the National Association of Realtors. They

5:11

set up all these rules that

5:14

are really hard to understand. They don't make

5:16

common sense, because they're not

5:18

designed to buy common sense. It's designed

5:20

to prop up prices. And

5:22

so you can't really understand it. So

5:26

you're not below average in tell it

5:28

or anything. It's by design. Then you

5:30

pose the question, okay, how

5:32

does it work? Well, basically, the 5.5%

5:35

fee gets split or 6%. By the

5:37

way, in Iowa, it's like 7%. It

5:39

depends on, you know, the

5:41

geography. But it's always 5.5% to 7%.

5:43

And I said that it would change

5:45

my geography. It doesn't change down by

5:47

geography. It like goes up from 5.5%.

5:49

But anyway, how does that fee get

5:52

separated? The sell side

5:54

agent tells the seller that now they

5:56

have to buy their services to sell

5:59

their home. But they also must

6:01

buy a separate service, which is

6:04

called paying for a buyer's agent

6:06

for a buyer who you don't know, who

6:08

may not even need a buyer's agent,

6:11

especially in the age of the web, when all

6:13

the information on the buy side is available and

6:15

free, kind of like buying stocks nowadays. But

6:18

you're required to use an agent on the buy

6:21

side. So, number one, illegal tying

6:23

arrangements. And this is maybe for the, maybe for

6:25

some of you guys who aren't lawyers on the

6:27

phone, if all the

6:29

competitors get together and say, if you buy

6:31

this one service, you must therefore buy another

6:33

service. And all the competitors agree to that,

6:35

well, that's an antitrust problem,

6:38

right? Imagine Goldman Sachs, Morgan

6:40

Stanley, Merrill Lynch, and you do, send it

6:42

all, got together and said, hey, if you want

6:45

to use this to sell shares, you've also

6:47

got to pay an agent on

6:49

the buy side for Jack to buy those shares.

6:51

Like, you couldn't do that. You're not allowed, that's legal

6:53

time. Second thing, it allows the price

6:56

to fix because if they say to

6:58

you, if you don't offer two and a half to

7:00

3% on the buy side, the

7:02

buy side agent will steer the customer away from

7:04

your home because they're trying to maximize their revenue

7:06

per transaction. So, if you're offering one and a

7:08

half or 2% and everyone else is

7:10

offering two and a half to 3%, well, guess what happens

7:12

to your home? It doesn't get shown, right? Because

7:15

they're trying to maximize their profitability. So, you better

7:17

pay two and a half to 3% if that's

7:20

the standard rate in that market because

7:22

otherwise your house will get shown. And

7:24

so, that's part of the price fix. The fact

7:26

that buying agents, agents

7:30

representing someone who wants to buy a property

7:32

will have to get in on a commission

7:34

or get a guaranteed commission. Otherwise, they won't

7:36

show their client the property. Oh, 50 Melrose

7:38

Street, that looks great. Oh, I'm not getting

7:40

my guaranteed commission. I'm not going to show

7:42

my client that. You know that that

7:44

happened at least in some instances and I know that

7:46

that happened and you have the proof to have it

7:48

and you share it with me. We'll share that in

7:51

a moment. What is that? It's self

7:53

illegal. The act of a buying agent say, oh, I

7:55

don't get my commission. I'm not showing my client

7:58

the property even though they want to see the property. Yes,

8:00

they have a fiduciary duty to the

8:03

buyer. Right? Now, this

8:06

is why this system is so

8:08

anti-competitive, but also just so awful.

8:11

If the buyer agent is supposed to

8:14

put the buyer first, just like

8:16

if you're representing the defense in a

8:18

lawsuit, not allowed to get paid

8:21

by the plaintiff. Right? The

8:23

plaintiff is satisfied with your services, will give

8:25

you the end of the

8:27

case. Why is that against the ethics rules

8:29

in the legal profession? Same with Goldman's investment

8:32

banking. Can you

8:34

imagine if we were to pay Morgan Stanley,

8:37

if you find a buyer, this business will

8:39

pay you 2% of the proceeds. I

8:41

thought they were representing the buyer. They're going

8:44

to be incentivized to tell the buyer, you

8:46

better pay $2 billion because it's

8:49

a lot of competition and you

8:51

won't get it if you offer 1.8. Well,

8:54

is that because you really think that? That's

8:56

because you only get paid if you win

8:58

the bid and then you get the

9:00

fee. There's

9:02

so many things that we can go on about this and I

9:05

don't want to bore you or

9:08

your viewers. But yes, it's unethical

9:10

and wrong that you're getting paid

9:12

by the other side because it

9:15

makes the agent principle problems even

9:17

more dramatic. And that's

9:19

why other industries have banned it, other

9:21

than this one, apparently. Right. The

9:24

investment banking example you brought up and

9:26

you obviously have experience in that, it

9:28

is common for, let's say Morgan Stanley,

9:30

to get a fee of raising

9:33

money, i.e. selling equity or debt to the

9:35

investment public. They would get a percentage of

9:37

that. You say it's less common for it

9:39

to be a buy. But even if there

9:41

is some sort of consulting arrangement, there's no

9:44

agreement where 3% of every

9:46

investment banking deal is done. If it's a risky

9:48

deal, a high yield deal, I believe it's the

9:50

case, you get paid more. People raising bonds, you're

9:52

going to pay a much lower percentage as a

9:54

percentage. And it's

9:57

competitive. There's investment bank A, investment bank

9:59

B, investment. Bank A is going to cost

10:01

more money. Let's go with investment bank B. Oh,

10:03

okay. We'll make the difference on our perceived of

10:05

their skill, of their reputation and

10:07

the like, but it's, it's not a cartel,

10:10

at least in that regard. So

10:12

I looked a little bit into the history of

10:14

the national association of real estate boards and going

10:17

all the way back to the 1940s, they used to have

10:22

a specific six commission. The justice

10:24

department in 1947 hit them

10:27

within the national association of real

10:29

estate with an antitrust suit. And

10:32

here we are. Nearly

10:34

80 years later and

10:36

NARS national association of real estate,

10:39

they have according to Bloomberg dutifully abandoned

10:41

their formal rates schedule. So they don't

10:43

have, you have to do this. Instead,

10:45

they just have recommendations or suggestions. And

10:47

I'll also go into a national association

10:50

of realtors website about, here's what the

10:52

media gets wrong about the fact that

10:54

national association of realtors settled. By the

10:56

way, they settled for. I

10:59

think $418 million, various groups. And

11:03

you have your lawsuit still pending. This

11:05

is the quote from the national association

11:08

of realtors NAR quote, NAR does not

11:10

set commissions and commissions were, are negotiable

11:12

and were negotiable long before the settlement.

11:15

They are, and will remain entirely negotiable

11:17

between brokers and their, their clients and

11:20

housing prices are dictated by market

11:22

forces beyond members control, end quote,

11:24

yada, yada, yada. So NAR says

11:27

we don't fix rates. We don't

11:29

set commissions and it's all market

11:31

prices in the empirical data. We know it is

11:33

often 6%, 5 and a half percent. Jack,

11:36

can you help me and our audience

11:38

here today explain that disparity between NAR

11:41

doesn't set rates, but then the rates

11:43

have the effect of being fixed. You

11:47

referenced, uh, stock brokers and I

11:49

have to, uh, and just to give you a sense

11:51

for the analogy in 1997, 1998, I think it was

11:53

the U S Department of justice

11:56

sued the NASDAQ dealers because.

11:59

the price for trading shares was 12 cents. There

12:02

was never a formal

12:05

agreement that you must charge 12 cents. But

12:07

the problem was Goldman Sachs was on the sell

12:09

side at one moment, the buy side, the next,

12:11

right? And you're dealing with like seven firms over

12:13

and over again in the jurisdiction

12:15

of the area where Goldman tried to make

12:17

market. And so today you're the buyer,

12:20

tomorrow you're the seller. Anyway, if you

12:22

tried to sell shares less than 12 cents

12:24

back in 19, trade shares, not sell trade

12:26

shares close to 12 cents in 1998. Your

12:31

competitors partner and run the trade desk would

12:33

call your partner in the trade desk and

12:35

say, hey, Jack Ryan's acting unprofessionally. Oh,

12:37

really what? He's quoting shares less than an

12:40

eighth. Tell them to knock it off.

12:42

It's unprofessional. You know, there was

12:44

no formal agreement

12:47

that he had to charge

12:49

12 cents, but it was a US

12:51

versus starts with Alex Brown because they're the first in

12:53

the alphabet and they list the other 50, 60

12:55

firms after that. And then

12:57

they had to stop the informal

13:01

way of a better word, don't hold me to this price fix. Anyway,

13:04

the same thing happens in residential real estate

13:06

today, oh, you know, the buyer, the seller

13:09

can offer any fee they want to the

13:11

buyer as low as a dollar. Okay,

13:14

so what happens if you offer a dollar? And

13:16

then the hundreds and hundreds of

13:18

tapes that the US

13:20

Department of Justice now has in their possession that

13:23

says, we have people basically

13:25

threatening us saying, hey, you're not gonna last

13:27

long in this town if you're not offering

13:29

that buy side commission. By the way, 32

13:32

and a half to 3% else

13:34

is curtains for you as a

13:36

business person in this town, right? So yeah,

13:38

you can offer a penny if you want

13:40

or a dollar I should say, but then

13:43

what happens? The house doesn't get sold. Furthermore,

13:45

this thing in economics called salines. When you mix

13:47

these two fees together, it's hard to separate them

13:49

and have people negotiate and experiment both

13:51

of those fees. If that's what economists

13:54

call salines, can you see the price and the

13:56

service? So you can start negotiating that. When you

13:58

mix the two together, you know, you're saying, It's

14:00

hard for a person who isn't

14:03

an investment banker or economist for a

14:05

living to figure out, well, where

14:07

can I negotiate where I can't? So

14:10

you go to the self-assigned agent and say,

14:12

hey, I want to only pay 2%. Well,

14:15

first of all, you got to pay that 2.5% on

14:18

the buy side, also your home's not going to

14:20

get shown. And then you don't take my fee down from 2.5% to 1.5%. All

14:25

you're doing is getting need because you've

14:27

changed the fee from 5% to 4%. So

14:30

it'll make much difference to you why you peak up on

14:32

me. And

14:34

so it's not hypothetical when it's theoretical from

14:36

all the economists that would take the exact

14:39

same thing. And then let's see how the

14:41

theory works in practice. And

14:43

then there's this hundreds of tapes, 600-some hundred

14:45

tapes that we have where

14:47

people are saying, agents are saying, hey, if

14:50

you don't offer this fee, I'm

14:52

telling my customer that how home was sold, right?

14:54

Or I'm telling all my people in this neighborhood or

14:57

in this MLS, and I have to do business with

14:59

you, you're done in this town. You can

15:01

go more on this if you have interest, but I'm

15:04

trying to make sure that your audience stays

15:07

engaged on an arcane topic. That

15:10

should not be arcane. It should

15:12

be as simple as buying an

15:14

airplane ticket or crossing

15:16

a trip. So it is arcane in terms of

15:18

complex, but it really matters to so many people.

15:21

I mean, what, 60% of

15:23

people are homeowners? This really, you imagine the

15:25

majority of Americans, which you can't really say

15:27

about Nvidia's earnings. I mean, yes, it's interesting

15:29

and it is a bigger percentage of the S&P 500, but it's not

15:32

going to change your life. Whereas

15:35

a 1% on a housing transaction, that's a lot

15:37

of money. Well, Jack, let's take the rent in

15:39

the monopolistic order, the word rent, and take the

15:41

4% times $3 trillion. $120

15:44

billion every year transferred from middle-class

15:46

Americans to realtors. Over the next

15:48

10 years, probably over with inflation,

15:50

probably $1.5 to $2 trillion over

15:53

the next 10 years from middle-class Americans. Think

15:55

of just the dead weight loss of that

15:57

from an economic point. It

16:00

also affects renters. Why?

16:02

Because renters, some of them bought that brownstone in

16:05

New York and now is renting out those four

16:07

different levels. They had

16:09

to pay that 5% fee too and then

16:11

make their ROI on that higher investment, right? Everyone

16:14

bought their home for 5% less. Just

16:16

leave. The market drives rents down by 5%.

16:20

And by the way, it's not just the 5%, which

16:22

is this cannot rent. It would go away

16:24

in a competitive market. But second

16:26

is, what happens when Pulte or

16:28

Lenar's or Horta and

16:31

the public stocks don't have

16:33

this 3% artificial fee on the buy

16:35

side? Their margins go from 12% to

16:37

15%. How many

16:39

more homes get built when all of a sudden your

16:41

ROI was up by 30% and your margins go up

16:43

by 30%? So maybe

16:46

your listeners have been talking about what

16:48

stocks this affects and positively

16:50

and negatively. But how many

16:53

more homes? And that's the margin of

16:55

the public companies, which have huge economies

16:57

of scale. The middle kind of private

16:59

home builder, it's about 8%, 7%

17:01

margins. We have ones in their margins who

17:03

have 10%. How many more homes get

17:05

built when your margins are 10% and

17:08

that 7% of your ROI is 15% and that 10%, right? It's

17:13

dramatic. So that will also reduce the

17:15

price of renting as more supply

17:17

of homes come on the market as the margins and

17:19

the ROIs go up for building homes. Right,

17:22

so those companies you mentioned, Pulte, Lenar,

17:25

those are publicly traded home builders. Very

17:28

large companies that build homes in the US,

17:30

ROIs return on investment, you're saying that they

17:33

basically would make a lot more money

17:35

per house and therefore would build more

17:37

houses if they didn't have this fee

17:39

that everyone is paying. How is it

17:41

possible that there isn't competition? So if

17:43

fixing fees is formally illegal and

17:47

other countries have much lower fees and there's

17:49

competition in other countries, I don't know if

17:51

it's NAR or other institutions, how

17:54

do they maintain that grip on the

17:56

market and make sure that the fees

17:58

are very fixed? In other words, what

18:01

is keeping the fees where they are, where

18:03

it's not happening in Denmark or Sweden, where

18:05

the rates are much, much lower? There's a

18:07

number of things to talk about. Like to

18:10

make the analogy just really clear,

18:12

if you see somebody levitating in

18:15

Las Vegas, five feet off

18:17

the ground, it's not levitating.

18:19

I guarantee the spring, the string's involved.

18:21

Okay, I don't believe that's just levitating

18:23

there on its own, right? You know,

18:25

prices are levitating at five and a

18:27

half percent in the US or lower

18:29

everywhere else. Do not believe

18:31

there aren't strings. And you're asking me, what are those

18:33

strings that's levitating? Yes.

18:36

So one is the buyer broker commission rule that

18:38

I just described, which I know sounds complicated and

18:40

a little bit hard to put your head around

18:42

because it is hard to get your head around

18:44

because no other industry works that way. So

18:47

it doesn't come naturally to you or your

18:49

listeners. Second is the

18:51

segregation rule, which is what they got Rex

18:53

on. Rex is going public at about a

18:56

billion dollar valuation. We are charging 2% going

18:58

to zero just the way Robin Hood and

19:00

TD Ameritrade and Schwab was doing and what

19:02

we saw learning from Goldman, brought them over

19:04

to the home trading business. But

19:07

there's a thing called the segregation rule. I

19:09

don't think people realize that Zillow, which had

19:11

said it's going to be on the side

19:13

of the consumer, joined the National Association of

19:15

Real Service on the eve of our IPO.

19:18

And started enforcing the segregation rule. What's

19:20

the segregation rule? The segregation rule is

19:23

if your home is listed by an MLS

19:25

company, you can be put on the main

19:28

page where most of the homes are. But

19:30

if you are not part of the National Association of

19:33

Real Service, then you get put on a separate tab.

19:36

You got to be segregated. Put on a separate

19:38

tab. Nobody knows that once you go on a separate

19:40

tab, which is not where most of the eyeballs go,

19:42

then all of a sudden you're really

19:44

hurt. Our views went down by 80 to

19:46

90%. They

19:49

created a tab called agents, another

19:51

tab called other. Other

19:53

sounds like you're not an agent. Well, we passed

19:55

all the licensing tests and all the states were

19:57

in about 20 states. We passed all the agent

19:59

tests. tests for do you understand the

20:01

business and you know, are your background

20:04

checks copacetic? Yes.

20:07

We put in a tab called other as

20:09

if we're not real estate agents and brokers. So we

20:11

got double whammy one is people don't see us and

20:13

they do see us and think we're not agents. Yeah,

20:15

if I had a chance between clicking on I was

20:17

wanting to buy or sell a home, I click on

20:19

real estate agents or other I'm definitely clicking on agents.

20:21

I said who other what is other? Yeah,

20:24

you think it's kind of the radioactive pit

20:26

of homes or something. I mean, kind of something

20:28

suspicious going on like this. I don't want

20:30

to buy a home from an other. I

20:32

just feels like I'm putting a big amount of

20:34

money into something. It's not so sketchy. Right?

20:37

I mean, they could, they could have

20:39

said novices at homes, non-nervous at homes, but

20:42

you have to ask them as to why they chose other.

20:46

But we know we are agents, we were

20:48

agents in every sense of the word. So

20:50

there's a segregation rule. There's the fourth round

20:52

up of data where you sign when

20:55

you sign your selling agreement, which are the selling

20:57

agreements you just put together by that local Association

21:00

of realtors. They say you must handle hand

21:02

over all the data on your home to

21:05

the local Association of realtors or MLS and

21:07

they cop right and call their own and

21:09

they won't give the data to anybody else.

21:12

So why is that important? In the

21:14

21st century, imagine if Merrill Lynch and

21:18

Goldman Sachs and Morgan Stanley and Citadel said

21:20

unless you join the stock trading cartel, we're

21:22

not going to give you information on the

21:25

last trade, the price of the last trade

21:27

and the volume of shares traded. You're

21:30

weird. Right? The information is

21:32

essential to doing business. Right? You

21:34

have to publish the

21:36

price and the volume is, you

21:38

know, but they wanted to not publish

21:41

it so they can have it. And so that

21:43

also I can go through the other rules, but

21:45

those are the three things. The one that we

21:47

were able to work around it because we're using

21:49

AI for almost everything. I know this is a

21:51

big phrase, you know, now or two years ago,

21:53

we start out that way. Why?

21:55

Because we learned from trade Goldman

21:57

that you can do a. The

22:00

computers can do many things that

22:02

humans used to. And that's the same for

22:04

buying and selling homes. You can't show a

22:07

home as well digitally, physically,

22:09

although we were doing that. But almost

22:11

everything else, you know, it can be

22:14

done oftentimes better than buy a bot. Like,

22:17

you know, scheduling the home tour. A bot can

22:20

go around with text messages faster than the human

22:22

can. You take a boring task away from the

22:24

human, drive the cost way down, and you get

22:26

faster agreement that yes, we're going to meet tomorrow

22:28

at 4 o'clock with the inspector

22:30

and everything else. There are many things we were

22:32

doing with AI that just drove the

22:35

cost way down. Quite a better customer

22:37

experience, right? And

22:39

it was very transparent for other people too who wanted

22:41

to be with us. But what

22:43

got us in the end was Zillow joining the NAR on

22:45

the eve of our IPO and then pushing us off into

22:48

a tab that people

22:50

would not see and be suspicious of. And

22:53

NAR, National Association of Realtors, what

22:55

is an MLS and why are

22:57

they so important to the real

22:59

estate ecosystem? That's not a great

23:01

question. That is another arcane, archaic

23:07

block to competition that shouldn't exist anymore.

23:10

So back in the 1900s,

23:13

the population was still only across

23:16

the country. The 10 or

23:18

15 local brokers for the northern suburbs

23:20

of Chicago would say, hey, in this

23:22

paper-based world, do they know anything else?

23:24

They wouldn't say that. Let's exchange listings

23:26

with each other, with physical

23:28

copies, so we'll form this little

23:30

group and we'll make

23:32

sure that everybody knows what

23:35

homes are for sale so we can get

23:37

more awareness using each other's networks

23:39

with people so they can know the home is

23:41

for sale. That was the putative reason

23:43

to do it. Now, it's also good to have

23:46

all the competitors in a certain neighborhood all

23:48

getting together to visit frequently to

23:51

make sure that the homes

23:54

and the prices are getting distributed. Adam

23:56

Stitlow has a great quote. He says,

23:58

sell them. Do people in the

24:01

same industry get together for entertainment

24:03

or I think frivolity when the

24:05

conversation doesn't end in a

24:07

conspiracy against the public or to fix prices? This is in

24:09

1760 or 1770 and the beginning is so right. Anyway,

24:15

here we are in the 21st century. Buying

24:17

and selling homes is national in nature. You have

24:20

600 of these MLS's that joined forces in the

24:22

1930s. Let's put aside what their intentions might have

24:24

been. Let's put the

24:26

most honest intentions to exchange information

24:29

and paper forms so you could

24:31

make sure the homes were more

24:34

easily visible to each other. In

24:37

the 21st century, to have 600

24:39

different little kingdoms that

24:42

dictate the terms of competition in that little

24:44

kingdom, it makes it really hard

24:46

to have something like a Citadel or a NASDAQ or

24:48

a New York Stock Exchange. Why isn't that a violation

24:50

of the commerce clause? To have these 600 MLS's

24:53

set up and saying, here's the rules

24:56

by which you compete in the northern

24:58

suburbs of Chicago. Here's another

25:00

one of the southern suburbs of Chicago. Here's another of

25:02

the western suburbs of Chicago. All slightly different rules, although

25:04

the fundamental ones, the fixed prices are all the same.

25:07

Here's one for Chicago itself. They

25:10

shouldn't exist anymore and people can, I

25:12

think, like a billboard. They've been driving

25:14

and buying for so long, they don't

25:16

notice it anymore and how anti-competitive it

25:19

really is. So MLS is

25:21

a multiple listing service. Zillow,

25:23

which is a place people go on

25:25

to buy or sell or rent real

25:27

estate. How does

25:29

Zillow get those listings? Is

25:31

it other real estate agents

25:33

registering with them or do

25:35

they pay MLS's to get

25:37

that data? Zillow is

25:40

a network effect. The more houses that are

25:42

listed for sale, the

25:44

more valuable it is to other people. So the

25:46

more people go on the platform, so

25:48

it's this virtuous cycle. But how does Zillow get its

25:51

data or other platforms to get their data? Well,

25:53

there's three different ways. One is to go to

25:55

every individual agent and say, list your homes with

25:57

us, get some more visibility. that's

26:00

good for your customer and for you. And

26:02

then in turn, what happens is that aggregator, to

26:04

use the generic phrase, takes those eyeballs

26:07

and sells them to advertisers. Look, we

26:09

have lots of buyers looking for homes,

26:12

advertise that you should use Jack Farley

26:15

rather than a real estate firm to

26:17

pick for your buy side transaction, and

26:20

you will charge you 500 bucks for that.

26:22

So that's one is individual agents. The second

26:25

is go to the individual MLS's and say,

26:27

hey, let's have a contract between you and

26:29

me, Mr. Aggregator, Mrs. Aggregator. And you sent

26:31

us your listings digitally.

26:34

There's actually an IDX

26:36

exchange, like a data exchange

26:39

that you would be familiar with

26:41

in terms of how they send information

26:43

to Aggregator. Aggregator says, yeah, we

26:46

got the information and they put it up. And

26:48

the third is, you know, get a deal with

26:51

NAR or all the MLS's at

26:53

once, and they just upload the

26:56

listings. And so

26:58

before Zillow joined the

27:00

National Association of Realtors, they had about

27:02

98%, I think, in terms of, I

27:05

think it's what they had testified. They

27:07

had 90% of all the listings in the US. I

27:10

would do much better than that. But they said they wanted

27:12

to get more listings,

27:14

and so they joined the National

27:16

Association of Realtors to get the

27:18

other 2%. But then

27:21

they lose listings like ours because all of a sudden

27:23

we have to be on some different page. So you

27:25

have to do the math whether that makes

27:27

sense or not. Anyway, so you can get the

27:29

IDX individual members. You can do a group deal

27:32

with NAR and all the MLS's, or you can

27:34

do with the individual agents. Those are the three

27:36

ways to do it. But

27:38

even the individual IDXs have their own rules. So

27:40

there's like the rules of the MLS and the

27:43

NAR, and then there's the rule of the data

27:45

exchange. Even the rule of the data exchange, the

27:47

default position is that you have to segregate listings

27:49

again. You know, you

27:51

can't put NAR listings with non-NAR listings,

27:54

right? That's just why. Is

27:56

there any good business purpose for that? No.

28:00

The only purpose is to prevent competition. Right.

28:03

So that's one of the ways that fees get fixed. And

28:06

is it true that Zillow makes its money

28:08

by asking

28:11

real estate brokerage firms to pay

28:13

them so that they get shown?

28:16

Well, you know, I am stepping into a little

28:18

bit deeper water than I thought to, especially if

28:20

you go from Zillow or listening, because they'll say,

28:22

how do you know about our business? But I

28:24

can only know it's in the public. Yeah. I

28:27

mean, it's publicly traded. Is there anything that's not available in an

28:29

annual report? Yeah, I understand that, Jack. I will give you an

28:31

answer. I'll put the copy out because

28:33

it's going to be feedback after I speak about

28:35

coming to the other side saying, why is Jack

28:37

telling you about our business model? But I will

28:39

tell you what I read about in research reports.

28:42

And that is that most of the revenue

28:44

comes from advertising and who's

28:47

advertising on Zillow, the

28:52

agents who want five-side business, right? And then longer-term

28:54

sell-side business. But you're on Zillow because you're looking

28:56

for a home. Now, some people just do it

28:58

for fun, in which case that's brand advertising. So

29:00

when the time comes that they're familiar with their name.

29:03

But in terms of the short-term

29:06

transaction, the short-term transaction is buy-side business

29:08

because they listed the home. They already

29:10

had a seller. And there's

29:13

this 3% fee out there, 2.75% fee out there for the

29:15

buy-side agent, which is super

29:22

huge margin business. Why

29:24

is it hard, high margin, do you say, Jack?

29:27

Because in the 21st century, most people are looking

29:29

for homes on their own. They're

29:32

not asking the agent to drive them around, you know,

29:34

Ryan, New York for five weekends or like they were in the

29:37

1990s or find them on their own. They come to the agent

29:39

and say, hey, I have three homes and think about you getting

29:41

the in. And that's

29:43

that $800,000 home in Ryan, they have $24,000. So that's

29:45

really high margin business for that much work.

29:49

Anyway, so the buy-side agent will

29:51

pay a lot for that advertising.

29:54

But Jack, what happens when the fees in

29:56

the buy-side is Rex is successful and it's

29:58

lawsuit, saying this is a price takes

30:00

go from two and a half percent to

30:02

the rate is in most developed countries, which

30:05

is $1,000 to $1,000, not $24. Obviously,

30:11

if the value of that customer drops

30:13

by 90%, what's the value of

30:15

that advertising? Less. Less.

30:18

Less. Less. We

30:20

can all do the analysis about whether that's, you

30:22

know, is it linear, is it geometric, is it,

30:24

you know, something less. It's a

30:26

lot less. This is why the

30:28

ecosystem doesn't like, you know, people like

30:31

ourselves trying to feed to zero. You

30:34

at Rexhomes, you were representing

30:36

buyers, sellers or both? Both. But

30:39

you were doing both and you wanted to do business

30:41

on Zillow and Zillow said

30:43

you're not listed with

30:45

the National Association of Realtors. So

30:48

we're going to put you on an other place.

30:51

So it's basically making it harder for clients

30:53

and people who want to buy homes

30:56

to access your services. Yeah.

30:59

And by the way, for some years, we did

31:01

it fine on Zillow and Trulia. And

31:03

then on the eve of our IPO, suddenly

31:06

they joined the National Association of Realtors and

31:09

say, oh, we got to put you somewhere else. Oh,

31:12

wait, Jack, you know, I know I just

31:14

like happened in the creative, destructive world

31:17

in which we live. You guys like

31:19

Joseph Schumpeter, all those people, creative destruction.

31:22

Is that, you know, once it went public, of course,

31:24

there'd be fast followers. Right. Just

31:27

like Uber, Lyft

31:29

or Lyft claims they went

31:31

first, but it doesn't make a difference if they surpass the

31:34

other or rather the TV

31:36

Ameritrade Schwab. You know, of course you have

31:38

fast golden, fast golden Schwab as fast as

31:40

you can. It's confusing. Of

31:43

course. But we're successful

31:45

in the public in a billion dollars. Oh,

31:47

I see how you run this play out.

31:49

I'm going to knock it off. Well, one, you

31:52

know, that should be what happens.

31:55

Number two, we are OK with that because that builds

31:57

the credit-blowing market. It was only Schwab operators that you

31:59

can trade shares. for free, maybe it's a little suspicious. When

32:01

you have to forefire a firm and say, hey, you can

32:03

do this, then the customer goes, yeah, of course, I could

32:05

be able to do this. So we are

32:07

okay with fast followers. I don't think the industry

32:10

was okay with fast followers, right?

32:12

Because not the 5 or 6 firms following our business

32:15

model. It completely abended the

32:17

industry. But here's the weird thing, Jack,

32:19

is if they weren't

32:21

so focused on trying to keep the industry the

32:23

same as it was in the 1990s, they'd be

32:25

benefit-wise. It's only through bad

32:27

thinking that they go, let's keep things the

32:29

way they were in the 1990s. When stocks

32:31

went from 12 cents to less

32:34

than a penny to trade, did

32:36

firms do worse or better? The

32:39

market caps to the firms, right? They weren't

32:41

getting better. Now, was there consolidation? Yes. There

32:43

were like one from like 50 firms to

32:45

10 or 12 because the EF Huttons and

32:47

the PING Webbers that were all bought up,

32:49

but they were paid premiums. They all bought

32:52

up, consolidate, because there's economies of scale, fees

32:54

go down. But when I started at Goldman,

32:56

it was like, oh my gosh, we've traded

32:58

100 million shares today. Whoa, 100 million shares,

33:00

do you believe it? But then when the

33:02

fees go down to a penny or less,

33:04

hey, 2 billion shares pay today, right? And

33:06

by the way, that's the lead generation for everything

33:09

else that Goldman and TD Ameritrade and Schwab do

33:11

is they were doing trades for free. We just

33:13

can't confide with our services. They're just going to

33:15

be much better off, but they're fighting this kind

33:17

of last year's war and doing it very

33:20

vigorously, but I don't think it's in their self-interest.

33:22

This is just an opinion as opposed to in

33:24

fact, but I don't think it's in their self-interest

33:27

to be saving this back

33:30

1990 war to keep fees at

33:32

these super high rates. So

33:35

you believe that your IPO would have

33:37

been a signal to

33:39

other firms to start competing and

33:41

lower fees and the floodgates would

33:43

be open and NAR

33:45

didn't want that and Zillow was part of NAR. Well,

33:48

I can't tell what's going through their heads, but I

33:51

can tell you based on my almost 20

33:53

years goal and that once someone was successful,

33:56

you have fast follows coming on every single

33:58

time. Think of

34:01

retail, Target or Walmart, how many fast

34:04

followers did you get in

34:08

the stock trading business? How many fast followers did you get? All

34:11

these local like Ubers in the world. Of

34:13

course, it always works that

34:15

way, right? And so I think that

34:17

I'd be hard pressed to see a

34:20

successful IPO over a billion dollars where

34:22

it's a new way of doing business. We go,

34:24

oh, hey, I got an idea. Let's just knock

34:26

that one off. Don't be a genius. Let's just

34:29

knock off what Rex is doing. If we're number

34:31

two, that's the OK spot to be in a $3

34:33

trillion industry. If we beat them, that's even better. But

34:35

let's just get in the zone. It's

34:37

kind of simple. Some people have built their

34:39

entire business model, probably equity firm, especially Europe,

34:41

just saying, look, we're not going to

34:44

try to guess the next disruptive technology. That's

34:46

beyond our 10. What we're going to

34:49

do is watch the C-Class by looking at the

34:51

valuations and go, hey, we're doing the same thing.

34:54

It's kind of clever. Four guidance is

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VanX Securities Corporation, a wholly-owned subsidiary of

35:31

VanX Associates Corporation. Thanks. Let's

35:34

get back to the interview. When was Rex going to go

35:36

public? Was it in

35:38

2020? How far

35:40

along were you with the process of an IPO? We

35:43

got pretty far. We had three investment banks lined up, and

35:46

we also had partners involved. So

35:49

yes, we were pretty far along. And it

35:51

wasn't just like conceptually. Three of the six

35:53

bullish bracket firms were

35:55

working on it. So pretty damn close. We

35:57

were planning to go public in June, and I think they. They

36:00

collectively will knock Zillow

36:03

and Chuliette that are joined the

36:05

National Association of Realtors in

36:08

officially in February. And

36:11

we've already been working on

36:13

our IPL. But, you

36:15

know, as you say, correlations

36:17

never causation. So I

36:19

think your listeners will have to draw their

36:21

own conclusions. But the decision has to

36:23

change. It's not good for the American public. Did

36:26

you know, Jack, when speaking of some of

36:28

your listeners to subscribers, you know, some are

36:30

macro focused and some are, I'm sure, are

36:32

micro focused. But as mentioned before

36:34

that, you know, there's like this five

36:37

percent price tacked on. Five

36:40

percent of the price of the homeless

36:42

tacked on every home. Right. So that

36:44

hurts the housing affordability issue. And

36:47

then also rents. And

36:49

then as the fees go away, of course,

36:51

the ROIs for home builders go away, which

36:53

also drives down rents and also drives down

36:55

the price of homes. So double benefit. But

37:00

even from if you're a macro investor, even

37:02

from a CPI point of view, 40

37:05

percent of the CPI is

37:07

your either imputed rental costs or your

37:09

rental costs. Shelter. Yeah.

37:11

The price of service parabes to the price of

37:13

homes, you know, price on comes down by 10

37:15

percent of the next seven years. Well,

37:18

that's, you know, about five point

37:20

point five to point sixty inflationary impact

37:22

on the CPI every single year for

37:24

the next seven or eight years. Like

37:26

that's huge. When I say

37:29

this, this is this is the biggest heart

37:31

of this year, the U.S. and you let

37:33

me roll the rise of saying this guy's

37:35

exaggerating. Well, show

37:37

me the bigger one. Fair

37:40

oil, 1911, maybe. I don't know

37:42

that, you know, wasn't as advanced in terms of the

37:44

use of gasoline back then, but

37:46

it affects CPI. It

37:48

affects the price of homes. The

37:50

tax tax taxes to move into the

37:52

highest and best use. I assume that you're in New

37:55

York and you decide that, you know, you got this

37:57

great opportunity for your skills and your family. It's better

37:59

in. costing taxes where I am right now,

38:02

it's better if it can move quickly

38:04

to where their talents are most appreciated.

38:06

What does that do to productivity? And

38:08

by the way, homes are the launching point

38:10

for a lot of other industries, carpenters,

38:15

electricians, plumbers, energy listed, you

38:17

know, you want to know about stocks. You

38:19

know, those transactions for those kinds of services

38:21

cluster on the purchase and sale of homes.

38:23

When the fees go up from 5%, 6%

38:25

to zero or one, what's

38:29

the volume of homes traded? I

38:31

had mentioned that the volume of sharefated was 100 million to

38:33

2 billion when the fees dropped by 90%. There

38:40

was a study in Toronto when they added a

38:42

1% fee to

38:44

a property, it was like

38:46

a transfer fee. The volume of transactions in Toronto

38:48

went down by 15 or 20%. What

38:51

happens when the fees go down by 5%? Of

38:54

course we know that transactions go

38:56

up when transaction costs go down.

39:00

And they go down by 90%. I

39:02

think it's arithmetic, I don't think it's, I think

39:04

it's geometric, I don't think it's arithmetic, linear, that's

39:07

what happened at Goldman. When prices came down by 80%,

39:10

went up by 20 fold in terms of volume. So

39:13

if you're a buyer or seller of individual

39:16

stocks and you want to take individual positions,

39:19

who gets out asked, who gets benefited

39:21

by a increase in the volume of

39:23

homes traded by two or three times,

39:26

right? And if you want to go long

39:28

short because you want to keep a neutral

39:30

position, you go along the company on housing,

39:32

you go along the companies that are enhanced

39:34

by a volume

39:37

of homes traded. Those

39:39

companies would be home builders or what other sorts of

39:41

companies? Mortgage companies, the rockets of

39:43

the world, right? More transactions

39:45

occur, more transactions they do. A lot of

39:47

the money is made by placing the mortgage,

39:50

not the ongoing management of the mortgage that

39:52

would help sell it to your mortgage companies.

39:55

Look at your Angie's list, those that think

39:57

about, by the way,

39:59

the wages and. that employment of carpenters,

40:01

plumbers, electricians, painters, architects, they

40:03

go way up because their

40:05

jobs are tied to the

40:08

trading of homes. You do most

40:10

of your work when

40:12

someone buys a home and fixes it up for their

40:14

use, not because the

40:17

toilet broke this week. That's useful to them,

40:19

but that's not the big business. And then

40:21

same with getting ready for your home-made account.

40:23

So, the thing about both the industries,

40:26

put aside, I know that I think

40:28

Joe Biden mentioned recently that he's looking

40:30

at these title fees,

40:32

which are also way too high. But,

40:34

you know, if there's three times the

40:36

amount of transactions, guess

40:39

what? There's three times the amount of title services

40:41

needed. Same with escrow services.

40:44

Who could be hurt? The

40:46

brokers, their market has to

40:49

come way down, but to

40:52

the ground further, the brokers being

40:54

remaxed, anybody or anywhere,

40:56

I'm sorry, anywhere. I'm so

40:58

sorry. That's the owner of

41:00

Caldwell Banker, Compass, you

41:03

know, those firms, the brokerage firms. Redfin?

41:06

Redfin, yeah. You know, they'd

41:08

have to, you guys over there market caps,

41:10

they've all gotten hit pretty hard. That

41:14

would probably not help. And then, you know,

41:16

the other, the aggregators, they've got,

41:18

I'm asking they can't, they may come up with better

41:20

ways, different ways to get money, but I don't, I

41:23

wouldn't think. And

41:26

we'd have to be successful, or last year

41:28

has to be successful, but I wouldn't think

41:30

that, you know, relying on five-sided agents would

41:32

be a good read on

41:34

which to leave you. If

41:37

I were, I don't think it's just not anything insightful

41:39

to people running so

41:42

low, but, you know, they have

41:44

a transition, which always means high risk premium.

41:47

And then, if you're a macro guy, what

41:49

happens to GDP growth? I think GDP growth

41:51

has a permanent increase as far as the

41:53

eye can see for successful. Why? Because home

41:56

building and all the attached services are, you

41:58

know, depending on what you think. You

42:00

see different analyses are 15 to 20

42:02

percent of GDP. And

42:05

then also what happens when Jack can move

42:07

to his highest and best use easily. It's

42:09

really free. Jack can move around the country,

42:11

you know, Southwest Airlines, now free move up

42:13

the country. Now you're really free, Jack, to

42:15

move around the country. And how much more

42:18

is having benefit by some person who's good

42:20

at AI being able to move quickly from

42:22

San Francisco to Austin because they can more

42:24

narrowly match their skill set within the need

42:26

of a person in Austin, Texas. Right?

42:29

I mean, this is just, you know, Adam Smith. I

42:31

mean, the way Jack, I

42:33

wrote a book about this. It came out at one

42:36

of the people called Bringing Adam Smith into the American

42:38

Home with a brilliant guy named John Tammany about

42:40

how the cartel, created

42:43

the cartel and how what's

42:45

going to happen in the aftermath if

42:47

we're successful in getting rid of it. Not

42:50

as specific as these ideas of Jack. Your listeners are

42:52

getting much more information than they get from the book.

42:54

But they want to be like, I know I'm just

42:56

spewing a lot of stuff really fast and people in

42:58

town is mind blowing because I think you'll kind of

43:00

figure it out. This is always going to exist this

43:02

way. I don't think it's going to. It

43:04

doesn't make any sense or it would. And there's

43:07

going to be a lot of winners and losers

43:10

when this 125-year industry suddenly

43:12

gets morphed into a 21st

43:14

century one. Right.

43:18

I don't have the exact figures, but

43:20

shelter, which includes rent as an owner

43:22

occupied rent is somewhere between 30 to

43:24

40% of

43:26

the US inflation

43:28

metric CPI consumer price index.

43:31

So for example, the CPI right now

43:33

is 3.4% year over year, having fallen

43:35

from close to 9%. Whereas

43:40

the shelter component is still at 5.5% or 5%. As

43:43

such, all items in

43:46

the CPI minus shelter, once you take out

43:48

shelter is at 2.2%. So

43:51

only 20 basis points away from the Fed's 2% inflation

43:55

target, but it is that shelter cost

43:57

that has remained very, very sticky. And

44:00

you're saying that part of that, housing

44:02

would be a lot cheaper if you

44:04

didn't pay these owners, homeowners and

44:06

home buyers and home sellers didn't pay these

44:08

owners fees. And you said if that was

44:10

locked, as a long

44:12

short idea, it would be very good for

44:15

title services, carpenters, and

44:17

homebuilders, and good for GDP,

44:19

good for the economy, and negative for

44:21

inflation, sort of very, very bullish for

44:23

real growth. But it would be bad

44:25

for real estate agents and real estate

44:27

brokers. So let's take

44:30

Zillow or Redfin or

44:33

Compass Group, these online real

44:35

estate broker services, because

44:37

again, they're not agents, they just provide

44:40

services to agents. Describe

44:42

that type of business to me, because you're

44:45

right, we still live in this system of unofficially

44:48

fixed prices. Again, I'm saying that not

44:50

yours. And yet these real estate

44:53

brokerage companies have collapsed

44:55

in value. Why? Part

44:58

of it is because transactions have fallen off a

45:00

cliff because mortgage rates now are so much higher.

45:02

So there's not a lot of activity, and activity

45:04

is how they make their money. But

45:07

describe how these brokerage services that

45:09

provide services to realtors is

45:11

not maybe as good of a business as actually being

45:13

a real estate agent. Oh

45:15

my gosh, yeah, I'll tell you about that. That's really interesting. By the

45:17

way, you made this great point on

45:20

inflation and what happens to

45:22

it. And I just want to,

45:24

you know, we're talking at a big picture level,

45:26

and there'll be some people where economists are listening

45:28

maybe who will say, well, Jack, it's not that

45:30

all five are going to go back to the

45:32

homeowner. It's kind of like the incidence of a

45:34

tax analysis with the elasticity or elasticity of demand,

45:37

and blah, blah, blah. I want to

45:39

acknowledge that that's true. But for purposes

45:42

of simplicity, you know, I'm saying the

45:44

price level goes down by 5%, and

45:46

we had this huge increase in homes built because the margins

45:48

go up by 30% to 70% depending on

45:50

who you are and where you live. Okay, I

45:52

just want to put that kind of star next

45:54

to it because some smart guy

45:57

is saying, well, it's not completely 5% goes back.

46:00

And then on the other side of that story is that

46:02

then, okay, the owner retains more of the profits and

46:04

then that owner will deploy those

46:06

profits and then pass them through other things.

46:09

Well, in turn, it's to leave the economy. So I think your point still

46:11

stands. Okay.

46:13

This is how this kind of used to

46:16

work in the stock brokerage business at

46:18

Goldman, other places, circa 1990, in terms of how

46:20

do these brokerage firms work. Well,

46:22

yeah, I'm saying these fees are fixed and they're super

46:24

high, et cetera. And then you look at the ROI.

46:27

Guys, the brokerage firms go, hey, where are the excess

46:29

profits? Smart knowledge. That's

46:31

true. Yeah, where are the profits? Yeah, where are the

46:33

excess profits? I don't see it. I don't see

46:35

the super high ROI. Well,

46:37

so it's a very competitive business on the

46:40

brokerage side in this sense. They all compete

46:42

with each other in a

46:44

free market to pay up their point of

46:46

indifference for the agents. Right.

46:49

They'll say, I'll give you 80%, 90%, sometimes 100% of

46:51

whatever you bring in. Why

46:54

100% because they want that standard bear or Malibu or something.

46:56

So they get most of the bond and people think they

46:58

should use this firm in Malibu. All right. So

47:02

the excess

47:04

profits, as you may not surprise people

47:06

once I say this, reside at the

47:08

agent level, not at

47:10

the brokerage firm level. Because they're all saying,

47:12

look, do you want me to join Confessor,

47:14

Call a Bank, or ReMax, whatever? What

47:17

are you going to pay me? Right.

47:19

And so they all bid up to their fair market

47:21

point of indifference and they don't see excess profits. In

47:24

fact, because the industry churns so fast, sometimes you

47:26

see less of excess profits in the brokerage business.

47:29

But this is why there are many of them at

47:31

the top 10.3%, really fancy cars

47:33

and shipping, really big houses. And

47:35

there's TV shows about them because

47:38

the excess profits are being driven in that 6%

47:41

fee or let's say 90%

47:43

is going to the really good agent in

47:46

Malibu or ROI or something and 10%

47:48

is going to the brokerage firm. So

47:52

that's how the industry works. It's kind

47:54

of like Avon or they're all competing

47:56

that door or sales person and

47:58

whoever's the best at it, they'll pay more. of payout,

48:01

whatever is earned to that door-to-door

48:03

salesperson. Yes. The excess

48:05

profits are all go to the agent, not

48:07

the brokerage services where the agent hang their

48:10

hats because they have to compete for that

48:12

agent. Jack, I just want to go back to

48:16

2021 when you're going to list Rex

48:18

Homes. I believe you said you were

48:20

targeting a date in July

48:22

and to the best of your

48:24

recollection, it was in February when

48:26

Zillow made that change, they joined

48:28

the National Association of Realtors

48:30

and then they put your listed

48:32

homes in the other section and

48:35

not an agent, which one

48:37

might say that kind of implies that you're not agents,

48:39

even though you are agents. I'm not going to ask

48:41

what was the effect of that Zillow

48:44

move on your business, because that would put you

48:46

in a position of making a claim about A

48:48

causes B. I'm not asking about A causes B.

48:50

We know A happened, but just what

48:52

happened to B. So I'm

48:54

not asking about Zillow at all. But

48:56

after Zillow did this, what happened to

48:58

your business? What happened to your listings?

49:00

What happened to your transaction volume? So

49:02

I'm asking you about that February to

49:04

March, July period of Rex Homes. Yeah.

49:07

I just want to make sure that your listeners aren't

49:09

talking to great dip picture level, Jack, but then when

49:11

I come back in more detail, I'm going to come

49:13

back on your show, but I think, you know, effectively

49:15

I kind of said, well, they joined in February. I

49:17

think they actually joined three months prior to that or

49:19

five months prior to that, but they did make the

49:21

change to their

49:24

display page until

49:27

January, February, at least in the cities that we are in.

49:30

So I'm just in

49:32

purposes of getting clarity with

49:34

your listeners. I'm deflating some events just so it's

49:36

easy to explain. I'm just going into detail. I

49:38

think I'm just going to get

49:40

lost. Right. Yes. And so what happened

49:42

to us, of course, is two things. One is sellers

49:45

think that, who are selling their home,

49:48

think that we're not agents because they go to Zillow

49:50

to look it up. We said, are agents, they go,

49:53

no, Zillow doesn't say it says you're not an agent.

49:56

So, you know, when you're making your

49:58

case, the first impression. It's

50:00

pretty hard to say, yeah, well, Zillow's just got it all

50:02

wrong. And I'm like, really? Zillow's got it

50:04

all wrong? Yes, they do. Number

50:07

two is I say, well, if I list a view,

50:09

then my home's going to be pushed into this other

50:11

tab, which looks like

50:13

it's like all the refuse of

50:16

the brokerage industry. And furthermore,

50:19

I don't want to be viewed as

50:21

refuse. And how many less views do

50:23

I get if I'm on the back page of Zillow

50:25

or this other page, not on the page

50:27

where 95% of the listings are or 98% of those

50:29

things are? Well, honestly, probably 80% less

50:32

based on the data we got from Zillow

50:34

and other in our own data, maybe

50:36

90%. Yeah,

50:38

I don't think I helped. I appreciate the

50:40

lower fee, but I really do want to sell

50:42

this home. Now, we use a

50:44

lot of things with AI, I have to say, that would

50:46

try to predict who a buyer would be, just like the

50:49

way Citadelle Goldman tries to say, who is the most likely

50:51

buyer for these shares. But it's

50:53

necessary to do that, to really sell a

50:55

home well, but it's

50:57

not sufficient. You need to be

50:59

on the deep platforms, for

51:02

credibility reasons, as well as eyeballs. You

51:04

can't always predict who's going to. Sometimes

51:07

you can predict pretty well,

51:09

sometimes to sell them, depends

51:12

on the market, but you really have

51:14

to be on this platform. So of

51:16

course, it hurt our business. We didn't realize, we

51:18

knew it would be bad until

51:20

they deployed it. They

51:24

were telling us, at least by email, that

51:26

hey, you shouldn't see any diminution

51:29

in your views. We're like, I don't know. It

51:31

doesn't feel like that's going to happen. They spot

51:33

our understanding of tech and marketing, and we're a

51:35

tech marketing firm. When we saw the

51:37

deployment, we're like, holy Toledo, it's going to be bad.

51:39

And then of course, every day we look at the

51:41

data where we are a data center company. And

51:44

as they rolled out across the cities,

51:46

we would see it dropping, dropping, and

51:48

we tried a lot of things to fix it. Well, we can fix this.

51:51

And we tried everything we could to fix it, but I

51:54

think the conclusion is what we

51:57

just described. But

52:00

in the end, you know, the numbers, we put

52:02

in numbers every day. We're digital. We

52:04

were in another company. What

52:07

do you say the drop in transactions was material?

52:09

Oh, my gosh. And we grew

52:12

100% every single year, kind of

52:14

like an Uber or a Robin Hood. And

52:16

even in the COVID year, we

52:18

grew at 60%. We opened only one

52:20

city. So it wasn't like we were just opening new

52:23

cities. We opened one city in 2020 during the COVID

52:25

year, and we grew at 60%. That

52:29

gives you sense for same-store sales, so to speak.

52:32

So even a pandemic could not slow us. And

52:34

then Village Point, we are, like, okay,

52:37

that could do it. But pandemic not

52:39

only didn't slow you, it

52:41

accelerated everyone in the home transaction business,

52:43

right, because as interest rates fell, there

52:45

was a frenzy for housing and, I

52:48

mean, mortgage transactions was very high in

52:50

2020. Well, two things

52:52

happened. One is that for the

52:54

second quarter, they dropped off dramatically. It was

52:56

like, clearly Toledo, no one can be in,

52:58

I'd say, a place where residents are close

53:01

to others. There was an exception for home

53:03

brokers as an essential business. A lot of people, it

53:06

was not a good time to list my home, not

53:08

a good time to go to this people in their

53:10

homes. So second quarter was really bad. The rates are

53:12

coming down. Third and fourth quarter are pretty good. But

53:14

net-net, I think, for the year, maybe the industry was

53:16

up 2% or 3%. I think

53:18

the first and second quarter were down. Third and fourth

53:21

were up a lot. When you put it all

53:23

together, I think, and Jack, you'll know it better than

53:25

I, I think the industry was up maybe 2% or

53:27

3% that year. But we were at 60%.

53:31

It was not just two, three, four, five

53:33

standard deviations away. It was 500 standard

53:36

deviations away from the industry grocery.

53:38

That's a good point. So tell us

53:41

about your lawsuit. What

53:43

specifically is your

53:46

complaint, your suit? And

53:48

I think people listening to this will

53:50

say, okay, we understand why Jack

53:53

Ryan thinks that what the

53:55

defendant, Trulia

53:57

Zillow and Narr did.

54:00

But just because something is wrong – there are

54:02

plenty of things that are legal

54:04

but morally wrong that I wouldn't do. And likewise, there

54:06

are things that really nothing is wrong with them morally

54:08

in some people's opinion, but they are illegal. So

54:10

wrong and illegal are

54:13

two different things. So what is the legal

54:16

case against the

54:18

defendants? Well, it's

54:21

a very standard antitrust

54:23

claim, which is that

54:25

NARA and Zillow worked together

54:27

as NARA has done for

54:29

years to prop up

54:31

fees in this industry and combine

54:33

forces to hopefully

54:35

monitor the risks that were abiding

54:38

by the existing fee

54:40

structure. I

54:42

started to understand how it could not be

54:44

bad. You know, there's – NARA has an

54:46

offer up all the time saying, join the

54:49

NARA, and if you join the NARA, you

54:51

have to enforce these rules. That's an offer.

54:53

And then someone says, okay, I'll join. That's

54:55

an acceptance. I

54:57

don't know. I think it's pretty – to me, it's pretty

54:59

clear that is this an offer and an acceptance? You have

55:01

a deal. And it's

55:04

just that Jackie said, this sounds horrible, but it's

55:06

just the same thing. It's like it's riding up

55:08

with three other people and saying, hey, if we

55:11

hit Jack Farley, then we do it. We

55:14

don't need to have written documentation. We don't need to

55:16

read to it. We don't know what happened. I mean,

55:18

so I think that's pretty easy. I

55:20

want to get more into your

55:22

list. There's four ways that this

55:24

could impact their long-short

55:26

positions or their macro positions.

55:30

Okay, so there's four different

55:32

ways these super high

55:34

fees go away with the result that we've talked about,

55:36

who's going to benefit, who's going to get hurt by

55:38

this. One is there's

55:40

a lawsuit on behalf of Sellers Jack that was settled

55:42

for $415 million or so, right? And

55:46

by the way, that was in Missouri, the

55:48

sister case, and they won

55:50

at jury for $1.7 billion before tripling, which

55:53

would be $5 billion and somehow decided to

55:55

settle for $450 million. So

55:57

I was looking at how that happened. Why

55:59

that happened? So, look at that trait

56:01

to me, but that's

56:04

on behalf of sellers, right?

56:07

And then they had a

56:10

nationwide funnel list.

56:13

Then there's lawsuits on behalf of buyers,

56:16

which are still extant. Then there's the U.S.

56:18

Department of Justice, you might have seen two

56:20

months ago, that they got approval from the

56:22

Court of Appeals in Washington, D.C., to launch

56:24

their own investigation.

56:28

And there on behalf of all the people, the U.S.

56:30

Department of Justice is the U.S.

56:32

V. somewhere, right? It's people of America

56:34

versus someone. So, you broke a law. And they

56:36

have standing for everything. We only have standing

56:38

for our issues. So, there's the Department of

56:41

Justice. And the Fourth Avenue, Legal Avenue, is

56:43

REX. And we're on behalf of competitors. So,

56:46

there's the sellers and the buyers who got hurt

56:48

by this price fix. And then there's

56:51

these rules also hurt or

56:53

put on a business, a competitor. And

56:57

that's REX. And we have our lawsuit in

57:00

the Northwest area of the

57:02

U.S. So

57:05

anyway, those are the Four Avenues by

57:07

which all these horrible budgets outlined could

57:09

get fixed. So, there's a case against

57:11

the sellers, which was settled for $418

57:13

million. A case for

57:15

the buyers, as the plaintiff is,

57:17

is still extant. The

57:19

U.S. Department that is going on, and, you

57:22

know, being sued by the U.S., that's the

57:24

tough business. And then you are the

57:26

Fourth Avenue, REX versus, you

57:29

know, Julia and Nar.

57:31

What is the current state of your lawsuit, Jack? So,

57:34

we are on appeal in

57:36

the circuit

57:38

court, which makes up

57:40

Washington, Oregon and Northern

57:42

California. We didn't get to trial in

57:45

the district court. We got kicked out

57:47

on summary judgment because the judge said

57:49

there wasn't an agreement here, an agreement

57:51

here. But we all know

57:53

that agreements don't have to be in writing. They aren't being

57:55

explicit, which we said could be

57:57

to offer an acceptance. So We're appealing

57:59

that. And we should

58:01

be finally sometime soon and then

58:03

has it. That's that's where things

58:06

get you. C O J Bomb!

58:08

That. He doesn't affect their very professional there

58:10

that noise know know what them until it

58:12

she found something that you. And.

58:15

The third as yes, if the bothered by suits

58:17

rather. Suffer from his of your listeners

58:19

as if you are wanted to think about.

58:21

Okay now lead with i want Michael launch

58:23

sort of what man to do I want

58:25

to see the same side as the robot

58:27

time he supports be right about the direction.

58:30

I've. Found out the hard way that

58:32

he many years ago. Yes, Ah

58:35

there's there's is for loss. Is

58:37

this for avenues that they should

58:39

keep track Us. Ah,

58:41

The seller seem to be timeless.

58:43

The D O J interviews and

58:45

says that settlement is farcical of

58:47

each not approve This. To

58:50

the local Federal Judge. There's. The

58:52

by side seats that is still at

58:54

this. It. As our suits

58:56

and then the deal chance on to

58:58

seat. And

59:00

accent the resolution. For.

59:03

Buyers and Os and your next year

59:05

people should know. Whether. We

59:08

can success over the bars in the successful

59:10

of or what? This settlement with the seller

59:12

stanza. And then I would

59:14

have no idea. Really can't define about when

59:16

the deal j may or may not. that.

59:19

Guys. I'm on na.com and

59:21

from. Late. August of

59:24

last year they have a

59:26

pretty self congratulatory note saying

59:28

National Association of Realtors Triumphs

59:30

interacts antitrust lawsuit So you're

59:33

you're appealing that federal court

59:35

is missile. Yes,

59:37

And I'm summarizing. things really are very

59:39

high level for your listeners. The are

59:41

dozens of public. they can pull documents

59:43

in boulder, filings, neck and hopefully they'll

59:46

be. It was the soon. I

59:48

know with the she's timer sure if

59:50

you're in more detail. and

59:52

gonna join justice know whether successful

59:55

not ah and so they nor

59:57

said rex claimed that nor influenced

59:59

how Zillow displayed listings, which

1:00:01

is false. So you

1:00:03

think that that NAR changed how Zillow displayed

1:00:06

listings and NAR says they- NAR has rules

1:00:08

on how you're allowed to show listings. It's

1:00:12

right there on the rules,

1:00:14

the NAR rules for you must

1:00:17

aggregate listings. So

1:00:20

we'd never gotten from a jury. The

1:00:22

jury was out for two hours in

1:00:24

the Sitzer case. And usually a

1:00:26

jury's are out for days or

1:00:29

something, considering a civil case or criminal

1:00:31

case. In the Sitzer

1:00:33

case, they're out for two hours and return to the

1:00:36

1.7 to deling our verdict. Against

1:00:38

the NAR. What

1:00:41

do you think is likely? How do you

1:00:43

think in five years the real estate brokerage

1:00:45

energy is gonna look like? I would be

1:00:47

shocked if this industry

1:00:49

still behaves in the 1990s kind

1:00:51

of way, looking five years out.

1:00:54

Why wouldn't it behave in the same

1:00:56

way? Tax dispatchers, stock brokers, think of

1:00:58

every other intermediary, the brokerage

1:01:00

intermediary and what the internet has done to

1:01:02

affect the business. Like the internet has become

1:01:05

intermediary with full transparency and

1:01:07

flow of information, driving the

1:01:09

transaction costs way down. It'd

1:01:11

be hard. Is it

1:01:14

possible that this group

1:01:17

would still be able to enforce these fees

1:01:19

that no other intermediary charges in the US

1:01:21

that I can think of? Maybe there's some

1:01:23

group, I can't think of one that's large.

1:01:29

It's unfathomable to me, but maybe

1:01:32

this could be me because I've been looking

1:01:34

at this industry nine years ago and

1:01:36

saying why isn't this operating

1:01:38

like every other intermediary? I

1:01:42

have to say that that thing called

1:01:44

observation bias check may

1:01:47

exist. But even when

1:01:49

I take myself out of myself and look at it,

1:01:51

could it really be that in 2030, they're

1:01:56

still charging 5.5% to trade homes? I

1:02:00

just can't get my head around that. And

1:02:02

I think all the damage to so

1:02:05

many people, I mean, not just homeowners

1:02:07

and sellers. By the way, we

1:02:10

talked about this win-win, when you talk

1:02:12

about, hey, GDP growth goes up, probably

1:02:15

permanently. I don't know if it's like 1%

1:02:18

or probably 2% you're free of this part

1:02:20

of the economy, so the CPI goes down,

1:02:22

right? And then there's all these derivatives, benefits

1:02:25

to all these people, whether they're partners

1:02:27

or plumbers or architects or lawyers

1:02:30

who help you buy and sell homes, things like that.

1:02:34

But also, many states

1:02:36

have a transfer tax when you

1:02:38

sell a home, like 0.1% or something. It

1:02:41

funds fire department, first

1:02:44

responders, teachers. And

1:02:46

so when you have these transactions choked

1:02:48

by this 5% fee, who else is getting

1:02:50

hurt? Every state and local government has a

1:02:52

transfer tax that's funding these big

1:02:55

deficits they run right now that

1:02:58

at those state and

1:03:00

local levels, well, this ameliorates

1:03:02

that quite a bit because also

1:03:04

these transfer taxes go way up to

1:03:07

a three-ninth. So

1:03:09

I just can't imagine

1:03:11

that given the

1:03:13

win, win, win, win, win everywhere,

1:03:16

and we're not saying it just happened differently

1:03:19

than it's happened in the stock brokerage business

1:03:21

or travel agencies or pick, use

1:03:24

furniture on eBay or whatever. I

1:03:26

just can't imagine that it stays the

1:03:29

way it is. Not good for American

1:03:31

public, American consumer, American

1:03:33

economy. It's not good for

1:03:35

anybody, but for realtors. I can't imagine what the state

1:03:37

is worth. And is the

1:03:40

Federal Trade Commission, the FTC, which

1:03:42

looks at anti-competitive cases,

1:03:44

have they looked into the realtor

1:03:46

business? Well, this is

1:03:48

an issue of debate in Washington, D.C. is

1:03:51

there's two different agencies. There's

1:03:53

no long debate. The FTC has some

1:03:56

jurisdiction over some of the issues. The

1:03:58

DOJ has some jurisdiction. This is

1:04:00

why some people in Congress are saying that

1:04:02

we should just merge these two agencies together

1:04:05

so that fighting against each other.

1:04:07

Interestingly, with the FTC that allows Zillow

1:04:10

and Julia to merge in

1:04:12

2014 or something like that, I just at the

1:04:14

time was like, what? Shocking

1:04:19

about the second thing is the

1:04:21

DOJ has control. And trust division

1:04:23

has jurisdiction over these issues and

1:04:26

they usually ask, thanks, this is a big

1:04:28

picture. This is really without knowing. I

1:04:31

think oftentimes when the industry falls into a

1:04:33

gap between the two of them, they meet

1:04:35

and figure out who's going to cover what.

1:04:38

They debate who should be

1:04:40

taking this or that issue. So

1:04:43

anyway, answer your question. The FTC, for

1:04:45

instance, did have the Zillow, Julia

1:04:49

combination of their ambit and

1:04:52

then DOJ got this topic,

1:04:54

which is the broker industry

1:04:57

itself, not just the anger

1:04:59

under there. I just, the

1:05:02

DOJ has this one right now. They

1:05:05

do have this one period unless

1:05:08

something bizarre happens. And what's the

1:05:10

sentiment in Washington? I imagine if you were

1:05:12

to get in front of every senator

1:05:15

and Congress person, you were making

1:05:17

the passion case. I

1:05:19

mean, are a lot of them aligned with the

1:05:21

National Association of Realtors? How many of them kind

1:05:23

of see it your way or the answer not

1:05:25

many? I think they all see it my way,

1:05:28

our way. I have to say, this

1:05:32

is the curious case that doctors didn't

1:05:34

bark in case you're Sherlock Holmes fan.

1:05:39

So, one of the

1:05:41

things, the way they create the cartel is

1:05:43

one of the rule is that if one

1:05:46

person joins the NAR in your

1:05:48

firm, everybody must join the NAR. You

1:05:50

can't tell everybody what does that mean? It's the

1:05:52

fourth round up of dues. So

1:05:55

there's one point five million

1:05:57

NAR members at. and

1:06:00

local associated groups from members now pay collectively about

1:06:03

$1,000 a year. It's

1:06:05

a big picture again. It's a

1:06:07

big picture. It's $1.5 billion. I

1:06:09

did the math right. And

1:06:11

guess who's the largest trade group, the

1:06:13

lobbyists in Washington, D.C.? You only have

1:06:16

one guest, Jack. Darn. All

1:06:20

right. By the way, in

1:06:22

terms of the filings,

1:06:24

the filings themselves, you

1:06:27

have to add up both teachers' unions to

1:06:29

get the number that the NAR says

1:06:31

stands on federal law. They give

1:06:34

you a sense for the size of

1:06:36

this group. All right. Well,

1:06:39

okay. So why is it? I'm just

1:06:41

going to give you a thought experiment

1:06:43

here. There's

1:06:48

antitrust subcommittees in

1:06:50

the House and in the center. They

1:06:53

are holding hearings on

1:06:55

Google and Amazon

1:06:57

and, you know, pick

1:06:59

your company, right, Facebook for

1:07:02

anti-competitive behaviors. I

1:07:05

have thought experiment for you. Are

1:07:07

there any scheduled hearings on

1:07:10

this issue with the National Association of Realtors? I

1:07:13

don't know, but I'm going to assume no. No.

1:07:16

None. There's been headlines

1:07:18

about this as a cartel for

1:07:20

eight months and no hearings.

1:07:23

Really? Yeah.

1:07:27

You are at a loss for words. Really?

1:07:30

Have you not seen the effect lines the last

1:07:32

six or seven months? Have you not seen the numbers about how

1:07:34

much money you're going from the middle class Americans to brokers? Have

1:07:36

you not seen that it's not going to affect the use of

1:07:38

the economy? Have you not seen what it could be doing in

1:07:40

relation? Have you not seen what it could be doing as a

1:07:42

GND growth? Have you not seen what it's going to play to

1:07:44

do to low-income state revenue? No hearings. Wow.

1:07:48

Yeah. I've heard it said that real estate,

1:07:50

the real estate industry is a huge contributor

1:07:52

to DC, but

1:07:54

I never pinpointed it that it's not

1:07:56

so much landlord that

1:07:58

is the brokerage in industry that

1:08:00

is the biggest computer contributor. And

1:08:04

that's maybe why we have the

1:08:06

system that we do. I

1:08:08

want to speak about an individual, but once I'm going to say,

1:08:10

hey, we're with you. We're with you on

1:08:13

this. But we

1:08:16

can't, you know, with 1.5

1:08:18

million of them, how many

1:08:20

of that per congressional district? By the

1:08:22

way, the top 20% make a lot of money. Their

1:08:25

job is to work the PTA and to work

1:08:27

the football games and the churches and the synagogues

1:08:29

and slapbacks and all that. It's the last

1:08:31

door-to-door sales verse from the US. There's

1:08:34

$70 million in federal lobbying at the

1:08:36

federal level, and that's just federal level.

1:08:39

And the ones that you are in those forums, they fill out.

1:08:42

You really want me to keep you on? Is

1:08:45

that what you're asking? Can

1:08:47

we just have a hearing? Can we just have a

1:08:49

hearing? We'll think about it. Yeah, it

1:08:51

seems like the $1,000 per year to your

1:08:54

dues to the National Association of Realtors, seems like

1:08:56

a pretty good investment. The Realtors are getting their

1:08:59

money's worth and more. Sounds like it. Well, Jack, what I

1:09:01

want to ask about that is, once again, for everyone who

1:09:03

wants to hear I'm talking about a good picture. Like, here's

1:09:05

a good example. $1,000 per year. But,

1:09:08

you know, they put out, well, how much

1:09:10

goes to the NAR? How much goes to

1:09:12

the local associates Realtors? How much goes to

1:09:14

the advertising campaign, like your local broker, you

1:09:16

know, the ones you see

1:09:18

would say NAR, you know, your friend or whoever

1:09:20

it says. I can't really ask what they say. But,

1:09:22

you know, we got the line item. But

1:09:25

it is $1.5 billion in money going

1:09:27

to the National Association of Realtors, the

1:09:29

local association of Realtors, the, you know,

1:09:31

forms they put on about the industry

1:09:33

where they have all the competitors show

1:09:35

up and discuss the industry. All

1:09:38

those things. So when I say $1.5 billion,

1:09:41

I just want people to think that I'm saying $1.5

1:09:43

billion goes to NAR and they'll get it in your

1:09:45

email from NAR. And now I'm

1:09:47

not saying that. I'm saying it's $1.5

1:09:49

billion goes to dues. And then

1:09:51

you can see by each MLS, each local

1:09:53

association, Realtors, how they break out those dues.

1:09:57

Now, could they cut out the advertising expense? Could they cut

1:09:59

out some of the... that they ask, but at

1:10:01

$1.5 million, of course they can. They run their own

1:10:03

V&L. They can divert any way they want. And

1:10:06

so that's why I say, I think from what I

1:10:08

can tell from the public filing, about 70 million or

1:10:10

more goes to the federal lobbying, but

1:10:12

there's still 1.4 billion out there. They

1:10:15

can be diverted to what they want to do with the

1:10:17

things that's the interest of the industry. Got

1:10:19

it. Jack, is there

1:10:22

anyone listening to this who has found

1:10:24

sympathy with your arguments that

1:10:26

they can do to get involved to maybe change

1:10:28

it, to raise their congressman? Well,

1:10:31

of course, and the DOJ

1:10:33

and other people, and just, I

1:10:36

think it's just good for them to know what's going on and how

1:10:39

beneficial it would be if this were

1:10:41

to go away. First, not only the

1:10:43

120, 50 million Americans own homes, but

1:10:47

all the renters in the US too. It's

1:10:49

a huge benefit. And that's just for all

1:10:51

the trade organizations, all the professionals who depend

1:10:54

upon transactions, all the home builders, the

1:10:56

knock on effects are just absolutely huge. So

1:10:58

what can they do? I

1:11:00

think just be aware of it. Make sure

1:11:03

that if they have any interest

1:11:05

with their local state attorneys, generals,

1:11:07

and also the local national association or

1:11:10

local DOJ people, look into this, see

1:11:12

what's going on right there, Abbess. I

1:11:14

mean, I think it's pretty clear what's

1:11:18

happening here. I think we have great data and

1:11:20

everyone's anecdotal experience. I think one, I'm sharing with

1:11:22

them, no one's gonna say, that's not my experience,

1:11:24

I don't think. So I

1:11:26

guess that's what we could ask people to do.

1:11:29

Got it. The book is Bringing Adam

1:11:31

Smith Into the American Home. And

1:11:34

it's been a pleasure speaking with you, Jack. My final

1:11:36

question is not talking about

1:11:39

brokerage at all. We've talked about that at

1:11:41

length, but just the health of

1:11:43

the housing market. In other words, demand being

1:11:46

strong and demand being greater

1:11:48

than supply and prices going up. I

1:11:50

think many in the media and

1:11:53

many economists and many in the housing industry,

1:11:55

myself included in 2022, thought

1:11:58

that rising interest rates would. really

1:12:00

put pressure on the housing market. Now,

1:12:02

as we mentioned earlier, it put a

1:12:04

lot of pressure on transactions. Transactions dropped

1:12:06

like a rock. However, housing prices did

1:12:09

not because there were very few sellers

1:12:11

in the existing home market. So a lot

1:12:14

of the buyers had to go to the

1:12:16

new home market. So prices have moderated and

1:12:18

they appear to be increasing now. How

1:12:22

would you currently assess the health of

1:12:24

the housing market? And earlier we talked

1:12:26

about long short traders. In

1:12:28

your personal opinion, obviously not investment advice, like what

1:12:30

do you think about the pricing power of home

1:12:32

builders? In other words, is it gonna be a

1:12:35

strong market for housing or not? Cal,

1:12:37

it's so hard to predict. It's kind of like predicting

1:12:39

the future of the stock market in many ways. In

1:12:41

fact, in this book, we talk about how

1:12:43

interest rates seem to have been uncorrelated over the last

1:12:45

40 years with how many

1:12:47

homes get traded in housing prices.

1:12:50

You can go back into the late 1970s during

1:12:53

the Nixon Carter administration when rates were

1:12:55

really high. It

1:12:58

seemed like it didn't really affect home prices and

1:13:01

then the reverse sometimes rates really low and it

1:13:03

seemed to affect home prices. So it definitely seemed

1:13:05

to be as correlated as one would think. In

1:13:07

the short term, of course, people locked in their

1:13:09

low term rates. They don't wanna sell because they

1:13:12

locked in these long mortgage rates that crimps the

1:13:14

supply and demand as high as ever. By

1:13:17

the way, it's not just the brokerage fees.

1:13:19

I don't wanna give you an impression too.

1:13:21

It's a lot of these zoning rules that

1:13:23

allow you to build multi tenant buildings or

1:13:25

don't allow you to build homes as quickly

1:13:27

as you would like. I

1:13:29

think brokerage has a big impact on it and

1:13:31

so it makes things a lot better when

1:13:34

these huge fees go away. But

1:13:36

there's also other issues having to

1:13:38

do with NINBY and things like

1:13:40

that, especially in California,

1:13:43

constrain the supply of housing. The issue

1:13:45

about interest rates and housing prices is

1:13:47

what's been debated by people much very

1:13:49

talented like you, Jack, for a long

1:13:51

time. You do a chapter on it

1:13:53

and show what happens interest rates, housing

1:13:55

prices and volumes over time. And

1:13:57

it's hard to find a great correlation between.

1:14:00

That's really interesting. Well, Jack, we'll leave it

1:14:03

there. Thanks so much for coming on, sharing

1:14:05

your views, and thanks everyone for watching. Thanks

1:14:08

a lot for having me, Jack. Thanks

1:14:12

for watching. Remember to check out

1:14:14

vanek.com/mote FG to learn more about

1:14:17

the Vanek Morningstar WideMode ETF, ticker

1:14:19

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