AI: Many. Humans: Still One,What Does The Realtor Settlement Mean for Us, Wars and Markets | May 2024

Living Legacy - May 2024 Newsletter


AI: Many. Humans: Still One

Artificial intelligence first proved its mettle by beating game experts. Deep Blue famously beat chess champion Gary Kasparov as early as 1997, and more recently the AlphaGo AI algorithm beat masters of the Japanese board game Go, playing (the masters said) with innovative and sometimes mysterious strategies that seemed as if they were playing an alien. Poker-playing robots have been demonstrated to bluff effectively to deceive their human opponents. In 2011, Watson beat the best humans at Jeopardy.

In all of those cases, the artificial intelligence algorithms ‘trained’ by playing millions of games against each other, testing different strategies and ‘learning’ from what worked and what didn’t, what information to access and when. And with millions of game situations to draw from, the AI programs were able to recognize positions and respond with what has worked in the past much more quickly than the human mind.

So that means AI will beat humans in all games, right? Interestingly, there is still one game where trained AI algorithms lose to expert human players. The game is Bridge, which involves precise bidding techniques, assessment of opponent strategies and educated guesses about the lay of the cards. A program called Nook is on the case, but we might be heartened to learn that there are still a few things where humans are still superior to the machines.

What Does the Realtor Settlement Mean for Us?

You might have read about what the press is calling a seismic shift in real estate commissions, and how people are going to be paying their realtors a lot less to sell their homes going forward.

The changes are the result of a $1.8 billion lawsuit filed in Missouri by a group of home buyers, who claimed that the National Association of Realtors (NAR) and two large realtor organizations were conspiring to keep broker commissions at the industry standard 6%, when a truly competitive marketplace would have produced commissions in the 3-4% range. The settlement impacts more than a million realtors, and paves the way for home sellers to shop the prices (commissions) that they would pay to a listing agent and the ultimate sales agent.

As a result, real estate commissions are expected to fall 25% to 50%, on average for the 1.6 million real estate agents across the U.S. marketplace. In dollar terms, the average-priced American home for sale ($417,000) would have paid $25,000 in brokerage fees before the settlement. That would fall by between $6,000 and $12,000.

The NAR agreed to pay $418 million over four years to resolve the price-fixing allegations. But perhaps more painfully for the organization, the settlement will also provide more market share to flat fee and discount brokerage operations, which had been forced to do business outside of its Multiple Listing Service. Independent (Non-NAR) members will now, through the settlement, be allowed to list properties on the MLS, and they might (still up in the air) be able to advertise a lower commission.

Analysts are still sorting through the real-world impact. But the ruling opens the door to buyers paying some or all of the (negotiated) brokerage fees for the service of finding the property, rather than the seller being on the hook for the entire brokerage fee. Nobody seems to expect the ruling to produce a rush to sell homes and properties; in fact, paradoxically, it could reduce sales activity. Why? Buyers may not always have the funds to pay a broker out-of-pocket; they typically rely on the mortgage loan for the purchase funds. Current lending practices don’t allow brokerage fees to be added to the cost of the home, so the brokerage fees would have to be somehow added to the price of the house to be covered by the loan.

Wars and Markets

The escalation of tensions in the Middle East, and the Israeli army’s campaign in Gaza, has flared into open conflict between Israel and Iran. Iranian missiles have been raining down on Israel, in retaliation for Israel’s army bombing the Iranian embassy in Syria. Iran has said that its response will be measured. Israel says that the missile attack is a declaration of war, even though it appears that most of the attack was intercepted before reaching the intended targets.

This, of course, comes on top of Russia’s invasion of Ukraine, which has seen threats in the Russian press of wider military excursions in Eastern Europe.

It’s natural to ask how these turns of events will impact stock and bond portfolios. Unfortunately, the answers are not clear.

The quick-twitch traders who drive daily price movements in the stock indices are averse to uncertainty, so the easy prediction is that there will be a (probably cautious at first) initial rush to safety that will take the indices lower. Global markets responded with a downturn, with gold and bonds experiencing price rises. Of course, in the past, those dips have been temporary and, if there is a standoff or stand-down, then the quick-twitch traders could be the first to rush back in, driving share prices on their previous (bull market) trajectory. One can wonder how they expect to make a profit from this behavior, but the outcome, if the past is any indication, is somewhat more certain for long-term investors.

The markets, in the past, have risen despite significantly more fearsome events than what we’re experiencing now: the assassination of a president, U.S. involvement in wars in Kuwait and Iraq, the military invasion of Afghanistan and some of the most turbulent political winds in American history. It’s helpful to remember that even if we feel unsettled about what’s going on in the world, bombs and missiles in the Middle East aren’t making the intrinsic value of U.S. stocks any less valuable.

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