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Editorial


Front Page - Friday, March 27, 2020

Veteran Realtors on disasters past, how they survived




During the Great Depression, Herman Walldorf received an offer on a property he had under contract. The number was low, and Walldorf was concerned the seller would turn it down, so he tried something creative.

As his son, Realtor Charlie Walldorf, tells the story nearly 90 years later, the elder Walldorf attached a $100 bill to the contract so it would be the first thing the seller saw.

“The seller took the bill and kept looking at it,” Charlie Walldorf says. “He told my father he had never seen one before and then accepted the offer.”

Under Herman Walldorf’s leadership, Herman Walldorf & Co. not only survived the Great Depression, it became a thriving business that still exists.

“He would always say we’ll have recessions, but we’ll come out of them,” Walldorf says by phone. “And he was right.”

Walldorf tells this story one day after the National Association of Realtors released the results of a survey in which agents across the U.S. said buyer interest has declined by nearly 50% due to the COVID-19 outbreak.

The association’s chief economist, Lawrence Yun, attributed the decline in confidence to the direction of the economy and the measures taken across the country to combat the spread of the virus.

Like his fellow Realtors throughout Chattanooga, Walldorf is taking the crisis seriously. Due to the added risk the coronavirus poses to the elderly, he’s isolating himself in his home for the first time since he became a Realtor in 1966. But he remains optimistic about the future of the industry.

“It’s just a matter of hanging in there,” he says. “Things will go back to normal, it will just take a while. There are a lot of unknowns, but we’ve been here before and we’ll be here again. It’s the cycle of humanity.”

Walldorf’s hopeful outlook partially springs from his past experiences surviving major disruptions in the real estate market and the broader economy, including the high mortgage rates that devastated the housing market in the late 1970s and early 1980s.

“The mortgage rate went up to nearly 19%,” he remembers. “The market slowed horrendously. People didn’t move unless they had to.”

Walldorf says the local Realtor association became a skeleton of its former self as agents dropped out of the industry.

“We used to have phones in our cars that would allow us to talk with the office, and the joke was you could recognize a Realtor by the hole in his truck where his antenna used to be,” Walldorf recalls.

Peggy Pryor, owner of Coldwell Banker Pryor Realty, nearly lost her fledgling brokerage as mortgage rates soared.

“I had just bought a new building and I didn’t have many agents yet,” she remembers. “Rates were so high, those of us who stayed in the business had to earn a degree in finagling.”

“Realtors were saying they would never be able to close another house again,” echoes Darlene Brown, president and managing broker of Real Estate Partners and a 40-year veteran of the business. “But we survived and came back even stronger.”

Like Herman Walldorf during the Great Depression, the real estate industry found creative ways to encourage home sales when mortgage rates reached their peak in the 1908s, including assumable and wraparound mortgages.

However, these options were no longer widely used in 2007, when the next big meteor struck the real estate community. As the unregulated use of derivatives sparked the subprime mortgage crisis, Realtors either tightened their belts or dropped out of the business altogether.

Pryor Realty was among the brokerages that cinched their purse strings. However, the company was braced for the impact due to the prescient thinking of Pryor’s son, Phillip Pryor, the company’s vice president of operations and business development.

“He didn’t believe [the model of] using high-risk loans to allow people to buy houses was sustainable, so we became debt-free,” Pryor says. “This allowed us to weather the storm.”

Brown was also in a better position than many Realtors when the market dipped due to her work with Museum Bluffs Parkview Condominiums. Although some of her buyers had dropped out as construction began, Brown was able to salvage 85% of her sales as the economy gradually improved.

Brown’s business still took a hit, though. To make up the difference, she began to lease more rental properties. “I adjusted my business model to fit the situation,” she says.

Despite the NAR’s news about the reduction in buyer interest, Pryor and Brown join Walldorf in expressing hope for the future.

“There will be real estate companies that go under, and there will be agents that have to get out of the business, but if we get this under control soon, I think the housing market will bounce back so fast, it will be like this never happened,” Pryor says. “We already have a great need for housing in the U.S., so there’s a market for people to buy houses.”

“Many things have affected us over the years, but people will always need a place to live and they want to own a home,” Brown adds. “So, we’re trusting this will level itself out at some point.”

An additional release from the NAR supports Pryor’s claim that a healthy housing industry exists beneath the current economic disruption. One day after issuing the results of its agent survey, the association announced that existing home sales had climbed substantially in February after a slight decline in January. Additionally, for the eighth consecutive month, overall sales greatly increased year-over-year.

Yun said the nearly 7% surge was the strongest the housing industry had seen since February 2007, citing low mortgage rates and the release of pent-up demand as the reasons for the increase. For these reasons, NAR chief economist is also optimistic about the housing industry’s prospects.

“For the past couple of months, we have seen the number of buyers grow as more people enter the market,” Yun said. “Once the social-distancing and quarantine measures are relaxed, we should see this temporary pause evaporate and will have potential buyers return with the same enthusiasm.”

While Yun said offering a definitive forecast would be difficult during the crisis, he says he believes home prices will hold firm.

“Unlike the stock market, home prices are not expected to drop because of the ongoing housing shortage and due to homes being delisted during this time of crisis,” he noted.

The local association’s president, Brandi Pearl Thompson, says she is also confident that Realtors who are experiencing the disruptive effects of COVID-19 will have plenty of work on the other side of the crisis. But she’s tempering her optimism with a small measure of caution.

“I believe people are going to reevaluate the needs in their life. How will that affect the market? If this is going to be only a three-or-four-week thing, I don’t think it will have a massive negative impact. But if we have three months of vacation, I believe we’ll feel it as people try to figure out what the new normal looks like.”

Pryor also softens her hopefulness with a slight caveat. “This is a storm like no other we’ve experienced, so it remains to be seen how the industry will hold up.”

Brown, however, remains wholly optimistic that the crisis will be temporary and that pent-up demand will lead to an explosion of new business once it’s over. “At the end of this, you’d better have your running shoes on because people are going to want to get right back out.”