Emerging From Recession
By the summer of 1983, the entire nation had emerged from recession. Unemployment dropped. Interest rates plunged. Corporate profits rose. To keep up with demand, Ebby Halliday Realtors needed more sales agents, and more agents required a larger training facility. The company had outgrown its corporate headquarters in only five years. After more than 30 years in Preston Center, Ebby and Maurice decided to move the company’s headquarters to a centralized location. The new location six miles to the north offered more space, improved meeting facilities, and ample parking. Ebby’s signature location at the corner of Northwest Highway and Preston Road would remain a branch office. Ebby Halliday Realtors home sales in 1983 jumped a whopping 58 percent over the previous year, a result of 9,416 transactions for the year.
Almost one year later, in November of 1984, the rate of unemployment declined even further, and President Reagan carried forty-nine of fifty states in the presidential election.
Surviving In A Bust Economy
The looming economic storms had names—the “Oil Bust of 1986” and the “Tax Reform Act of 1986.” The oil bust devastated real estate values. The tax reform act removed tax shelters for real estate investments and in doing so crushed the real estate industry, the savings and loan industry, and major commercial banking in Texas. Either event alone would have been enough to cause a recession. Together, they were ruinous.
Of the two, the oil bust caught everyone by surprise. In the run-up of oil prices in the early 1980s, oil producers had gotten used to higher oil prices and higher profits. However, by November 1985, the price of oil had slipped from $40 to $28 a barrel. To make matters worse, a pricing ploy devised by the 12 countries that make up OPEC to drive high-cost producers out of the market backfired and caused prices to tumble to $12 a barrel by February 1986.
Prices dropped to $10 a barrel by midsummer. A drop in oil prices was good news for con–sumers and bad news for Texas. Practically overnight, almost every Texas oil producer, oil-related company, and oil investor, including banks and savings and loan organizations, was wiped out.
Oil companies fired employees. Exploration stopped. New commercial office construction ground to a halt. Residential housing projects collapsed, and with the collapse, home prices tumbled. Many homeowners simply walked away from their mortgages because the value of their homes was far less than the loan balance. Overnight, the Texas economy had become a joke.
The Tax Reform Act of 1986 was equally destructive. The tax bill cut the top tax rate from 50 percent to 28 percent and closed a host of long-standing tax loopholes. Among the perceived loopholes were the tax benefits of owning real estate. Minimizing allowable tax deductions and making the tax rate the same for capital gains and ordinary income evaporated the market for commercial real estate syndications. Stripped of the tax benefits, there was little reason to own improved real estate—the return on investment for owning office buildings and rental property was simply too speculative to justify the risk.
Even in the midst of such economic calamity, Ebby Halliday Realtors posted a record-breaking year for 1985 and in doing so celebrated 40 years of continuous sales increases. There was no way to extend the record to 41. By August 1986, Ebby’s home sales were down 10 percent from the preceding year. By the end of the year, the decline had worsened to 20 percent. The good news, according to Ebby, was that opportunities to make money still existed. Prices were lower, and interest rates were down.
Ebby believed the economic slump would last another 18 months. How long exactly depended on upcoming amendments to the tax bill and the price of oil. The problem for large real estate firms like Ebby’s was in covering fixed expenses—corporate salaries and office rent—until sales picked back up. The revenue to cover expenses came from commissions earned on home sales. Even a slight dip in sales could affect the paper-thin margin between a profit and loss.
No amount of hard work and determination would overcome the overwhelming tide of economic disruption. The company suffered another year of declining sales in 1987. Things could have been worse. That they weren’t was credited to first-time homeowners who bought homes at depressed prices and lower interest rates.
Much of this sales activity was at the low end of the market. The mid- and upper-end markets were essentially dead. Home sellers could not sell their homes for enough to pay off the underlying mortgage, which left them little or no money to get into a new home.
Within this crumbling market, sales as–sociates began to flee for other occupations. More than 1,000 residential agents in the Dallas Metroplex quit the business in the late 1980s. Ebby was able to hold onto her top talent because she had built an extensive infrastructure of technology, training, adver–tising, administrative support, legal review, financing options, corporate relocation ser–vices, and other functions that allowed her agents to focus solely on selling houses.
Ebby Halliday Realtors had another source of revenue to help survive the bad economic times ahead. Ten years earlier, Maurice had established a separate leasing and management services division. This small group of dedicated staff had low overhead and stellar profits. In the past, when interest rates fell and home sales rose, the leasing business leveled off. However, as interest rates climbed and sales declined, the leasing staff worked overtime to handle all the new listings. By the mid-1980s, the division was the largest leasing operation in Dallas. During the downturn, profits from the leasing division helped to cover the sales division expenses for office rents and corporate staff.
Ebby Halliday Realtors ended the year with total dollar sales down another 5 percent, but with total transactions up a few percent over the previous year. A recovery was slowly materializing.
Changing Of The Guard
Ebby had named her brother Paul Hanson president of the company, and he had taken her admonition to heart about becoming involved with the community. By early 1989, however, Paul believed it was time to step down as president and let Mary Frances Burleson assume day-to-day responsibility for running the company.
Mary Frances found herself at the right place at the right time. By the end of her first year as president, the market showed signs of a turnaround. The company ended the year with a 13 percent increase in sales and an 11 percent increase in sales transactions.
Banking Backlash
Even after a foreclosure, many Dallas-area banks couldn’t sell the homes in their inventory. This was common in the late 1980s because most of the properties for sale at auction were worth less than the loan balance, interest, and fees. A good example of the fall of Dallas-based banking was the demise of two of the area’s largest banks, Republic National Bank and First National Bank. The banks’ loan portfolios were hit hard by real estate devaluations.
After dumping undervalued property assets from their portfolios, the banks still didn’t have the reserves to stay afloat. In a desperate attempt to salvage these once-mighty institutions, the two companies agreed to merge in 1987 to form First Republic Bank Corp. The experiment was short-lived, however, and the Federal Deposit Insurance Corp. stepped in and took over the merged bank in what was then the largest bank failure in United States history, requiring over $3 billion to cover member deposits. By 1989, an out-of-state bank had swept into town and acquired the bank. The scene would be repeated many times by other out-of-state banks until there were no major Dallas-based financial institutions left standing.
In one sense, the turnover in bank owner–ship proved beneficial to the housing market beginning in 1990. Competition among competing banks for customers was keen and fueled a resurgence in the housing market. Dallas was suddenly a sellers’ market. Sales of existing homes in June set a new record for a single month. By year-end, total sales for the firm were up 15 percent, and the number of transactions jumped 20 percent.
Soon, however, the country slipped into a recession, with little consensus as to the cause. From July 1990 through March 1991, the U.S. economy showed the slowest growth rate since the Great Depression. The general gloom sent consumer confidence tumbling, and home sales in Dallas slipped by more than 20 percent during the first five months of the year.
A quick resolution of the Gulf War spurred the housing market, though, and by the end of the year, sales for Ebby Halliday Realtors showed modest gains. The real estate recovery caught fire in 1992. A small uptick in interest rates coupled with rising prices early in the year stimulated sales. Company results for 1992 topped the previous year and established new records for sales and transactions. Ebby Halliday Realtors finally surpassed its previous all-time record set in 1985.
