Most realtors don't make much money in a boom

Boston Globe reports:

In a 2003 paper titled ''Can Free Entry Be Inefficient?" Chang-Tai Hsieh and Enrico Moretti, economists at the University of California at Berkeley, examined the income of real estate agents in various markets under various conditions.

Relying on data from the Census of Population and Housing in 1980 and 1990, Hsieh and Moretti compared home sales in 282 metropolitan areas. But their story can be told using just a pair of cities: Boston and Minneapolis, which are similar in size and demographics -- but quite different in the price of their real estate.

In 1990, a typical house in Boston cost roughly twice as much as a typical house in Minneapolis. Since commission rates were fixed, an agent would earn twice as much selling a house in Boston.

But the Boston market, with so much more commission money up for grabs, attracted many more agents than Minneapolis did -- even though it turned out that more homes were being sold in Minneapolis.

The result? The typical Minneapolis agent sold twice as many homes (6.6 per year) as the typical Boston agent (3.3 per year) -- which left the Boston agent, despite the higher prices in her market, no better off than her Minneapolis counterpart. What should be a competitive marketplace -- which would inevitably lead to lower prices -- is not, since the price of the agents' service is essentially fixed.

The association's own figures show the same dynamic at work today, nationwide. From 2002 to 2004, during one of the hottest real estate markets in American history, the median income for realtors actually fell -- to $49,300 from $52,200.

Professions that have small barriers to entry have a difficult time increasing their median compensation.We wouldn't be suprised over time, if the real estate lobby tried to get Congress to pass legislation , to compel someone to use a real estate agent in a transaction.