Lunch With John Halsted: Finding the silver lining in a bad economy - 27 East

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Lunch With John Halsted: Finding the silver lining in a bad economy

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author on Feb 17, 2009

Corcoran Group Real Estate Senior Managing Director John Halsted has only been with the company for going on five years now, but his position overseeing the Southampton office and administering strategic projects for the firm makes him extremely knowledgeable about local real estate.

Mr. Halsted came to Corcoran from Allan Schneider Associates, where he was the director of relocation and information technology.

During a recent interview at Le Chef in Southampton, Mr. Halsted explained that he and his family—wife, Leslie, and daughters Tabor and Drue—settled permanently in Southampton in 2001 after extensive international travel due to his former career as a business manager of the international sales division for Allied Mineral Products. He said that he chose real estate at the prompting of a friend, mainly because he wanted to regain a better quality of life with his family instead of travelling 70 percent of the time.

And his 15 years of prior executive experience, though perhaps not a usual route to real estate, taught Mr. Halsted immeasurable skills about the management of business and a keen understanding of the global marketplace.

Mr. Halsted is now not only a hands-on leader at Corcoran, but is also the president of the Hamptons and North Fork Realtors Association (HANFRA) for the second year running.

Over lunch last week, Mr. Halsted discussed the state of the economy and forecasted how it will continue to affect the East End real estate market for at least the next year. But he also offered some hopeful thoughts about some of the positive changes the slump will eventually bring.

Q: In your opinion, where do you see the local real estate market heading?

A: I think obviously we’re in somewhat of a declining market. Year-end transfers, unit sales were down approximately 40 percent and volume was down by about 40 percent. In this market we’re going to continue to see somewhat of a contraction going forward for the next nine to 12 months.

Q: House prices have fallen, can you give some broad strokes about where the comparative price points are now?

A: The prices are coming down. Houses that are now in the $300,0000 and $400,000 range have historically been in the $400,000s to $700,000s.

Q: Does that mean that now is a good time to buy for well-qualified buyers?

A: I think it’s always a great time to buy real estate, but it depends on the value that you’re getting. And that’s why the houses that are best in show are still the best value. The challenge for those that have to sell or want to sell is to make the price right now so we don’t miss the market.

Q: In your opinion, are the big auctions that have been advertised recently good or bad for the market?

A: I question whether or not those auctions are actually going to happen [At the time of the interview, no date had been set for the auctions advertised for February and March by competitor Prudential Douglas Elliman.]. It could be a way to pick up buyers who are looking for something on the very cheap and would-be sellers that are somewhat distressed.

Q: Do you think the current real estate reporting in the national media is sending panic waves?

A: I don’t think panic, I think the people that are over-leveraged in their homes today, they’re panicked regardless of the press. They are having to pay that monthly mortgage payment and not seeing that money coming in whether through investors, or lost their job or something else. Most people that are involved in the market see it for what it is and understand the market dynamics.

Q: Is there a different market for the first-time buyer versus somebody who already owns a primary residence and is looking for a second or third home?

A: I think it’s a great time for first-time home buyers. Never have prices been so affordable as they are now at least in the last 10, 12 or 15 years. For first-time home buyers with good credit and access to cash, mortgage rates are at historical lows.

Q: But isn’t it a lot harder right now to get financing?

A: Banks are looking for more money down. Your credit score has to be high and you still have to find a lender that believes and sees the value in the property you want to purchase. There’s no question the credit markets have tightened up and that’s what Washington is spending so much time on, trying to loosen up the credit markets. They’ve injected a serious amount of money into the markets but we’ve not seen that money come back and open up these credit markets yet.

Q: How do you see the bailout going? There really aren’t a lot of loans being made right now.

A: At the HANFRA breakfast this week, Tim Bishop answered a lot of these questions. I think the old adage that time heals all wounds says a lot. I think we’ve got to go through a certain amount of time before the banks feel secure enough and they shore up their balance sheets to be able to feel comfortable about lending freely again.

Q: Let’s switch gears a little. Are you seeing more agents leaving the field right now because of the tightened economy?

A: I haven’t seen as many as I had perhaps projected. That’s not to say there won’t be a certain amount of agents that will leave the business in the next six months—2008 was not a great year for a lot of agents on the East End. They are now going into what appears to be another tight market and if you’re not able to generate revenue or an income, then you may have to look for other places to generate an income. But HANFRA membership in 2008 was at its highest, 850 members. We forecasted down the membership somewhere between 10 and 12 percent for this year and the National Association of Realtors in New York State has forecasting down 8 to 10 percent, so there is going to be some attrition with agents, not only on the East End but statewide.

Q: There has been a kind of a feeding frenzy in the past with agents. Do you see this attrition as something that will change the dynamic of the real estate industry here ... Make it less competitive for the agents that stay involved?

A: I don’t know that this business is going to get less competitive. Consider between 2,000 and 2,200 licensed agents in the five East End towns, now with almost the same amount of agents chasing 40 percent less business. Will that change? Two things that might make that change is unit sales will go up significantly or you’re going to have a lot of agent attrition. And I don’t think either one of those things is going to happen very quickly.

Q: Do you see any sector of the real estate market growing because of the economy now?

A: Properties under $1.5 million represent between 70 and 75 percent of the total transfer market out here and the transfers we’re seeing now tend to be more in the under $1.5 million. That may vary ... In the villages that number jumps up to $2.5 million. I think the numbers will bear out. The properties that have really stagnated are the ones that are $5 million and up, the large estates. There is a significant amount of contraction in that market segment.

Q: To what extent has Bernie Madoff or other alleged scammers affected business here on the East End?

A: I think it’s all about confidence. We have a few anecdotal instances where Madoff victims had to list their properties for sale. I think the biggest impact is in confidence.

Q: Do you see the ultra affluent maybe holding on to their money, just in case of a more serious recession? And are there more secondary homes on the market because of the economic downturn?

A: I think yes to both. There are people that are looking at the way they spend money. The very, very wealthy in some respects maybe are not as affected but I think everybody is affected in some manner so I think conservatism in spending will come out of this. They might spend less on a rental property this summer, maybe rent a smaller property or rent for a shorter amount of time.

Q: Regarding summer rentals, are we on target from last year or are the numbers significantly down?

A: Rentals are lagging from where they were last year. There’s been a lot more negotiability involved in the rental market that’s gotten signed. What we’re expecting is the rental market is going to start a little bit later. A lot of people will look at downsizing or staying for a shorter period of time as a general rule. You can’t broad stroke the entire market but I think that’s what we’re going to see.

Q: So what are the positives?

A: There are always people on the other side of the market. For first-time home buyers, now is an extremely good time to buy, provided they have what we talked about. Great credit, cash set aside, some job security.

Q: Talking in really broad strokes, how do you see the real estate situation affecting day-to-day life out here?

A: Broadly, we’re all going to be affected to some capacity. I don’t have a crystal ball to tell you to what extent each restaurant or art gallery is going to be hit by what’s happening in the economy, but I think if you’re not planning ahead and anticipating some sort of modest downturn in your business, then you’re not paying attention. We walked in this restaurant and saw the prix fixe. Bailout busters. Everybody has already begun to adapt to that and Memorial Day isn’t going to come and the light switch will go off or on. I think that people have started to adapt and will continue to adapt until they see positive changes in the economy.

Q: So, your prediction is about a year until we see an uptick?

A: Basically, but the question is when do we find the bottom of this economic mess we’re in and how fast will we pull ourselves up to what we consider the normal times. Back in 2002, 2003 and 2004 there were somewhat normal transfers and housing prices out here.

Q: Do you see prices coming back up after the rebound happens or do you think they will stay flat for awhile?

A: Again, broad strokes but a flat to gentle sloping upward. To what extent will that time take, I don’t know. Will it be 2, 3, 4 or 5 years? I have no idea but I don’t think we’re going to see, when we hit bottom, a spike upward like we did in the past. I think it’s going to be a gradual ascent.

Q: You’ve said ‘hit bottom’ a couple of times, do you think we are not yet there?

A: I don’t believe that we are really at bottom. I think the market is still contracting somewhat. Out here though, we tend to lag a recession and lead in a recovery.

Q: Any thoughts on when you think the bottom will come?

A: If you can time the bottom of the market then you should be at the Federal Reserve running the show.

Q: How are you going to counteract the economy in your own business plan?

A: Looking forward, people—agents and brokerages—have to implement some new steps to success. We have to look on the positive side of things. Everybody has to look at their business and reinvent or reimagine the way they are doing business. It’s not going to be the way we’ve done business in the past. We have to look at the way we are pricing properties that have to sell or need to sell. As an agent you have to look at your value proposition and what you’re offering your customers and/or buyers to keep them loyal. Rethinking the way you are spending advertising dollars in the way you are advertising and promoting a property. I truly believe that print advertising will eventually go the way of eight track tape. More people are dedicating that money allocated for online mediums where there is tremendous shelf-life and tremendous reach for potential buyers. But we need to educate agents and sellers. Clients are still looking for that big glossy full page color ad. I think with this market contraction, not only from a cost perspective but from a value perspective that might not make sense for every property, especially since 85 percent of home buyers typically make their first foray into the market through the web. At Corcoran we talk a lot about that with the agents and rethinking the way they are spending the money. Corcoran saw around this corner years ago and has been working on online advertising. We are absolutely putting a lot more online resources into keywords.

Q: Are you getting blow-back from agents and sellers on this new advertising strategy?

A: Absolutely. And not only is it about educating agents and sales force but also about educating the home seller. We have to show them that at the end of the day, what they’re going to see are results. Results are what you’re going to take to the bank.

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