Professor Austan Goolsbee on Zero-Profit Condition and the Real Estate Bubble

Housing prices are booming. Yet, even with all those expensive homes selling, real estate brokers aren’t seeing their income rise.

Austan Goolsbee, Robert P. Gwinn Professor of Economics, describes a new study that explains the answer in an article for Slate, the online magazine. Data from 10 years in 282 metropolitan areas—both hot real estate markets as well as stagnant ones—revealed the reason is an economic principle called the “zero-profit condition.”

In simple terms, there are no real barriers to entry to be a real estate agent. However, there are a limited number of potential clients. So in booming areas, there may be too many agents chasing too few sales. This means agents actually tend to sell fewer homes and their incomes show little change.

Read the full article.