The S&P/Case-Shiller Home Price Index was released today and showed continued broad declines in the price of existing single family homes across the US, with 13 of the 20 metro areas showing rates of decline. Overall, prices in the 20-City Composite compiled by Case-Shiller were down 19%.
The decline from the peak of 2006 has been precipitous; the chart showing the percentage decline from the prior year looks like an unscalable cliff face, and the housing industry is sliding down it at a rapid pace.
The three worse markets in terms of annual declines were Phoenix, down 30%, Las Vegas, down 33% and San Francisco, 32%.
The combination of price declines and decreased sales volume has significantly reduced overall marketing spend by real estate agents and companies and has ravaged classified spending.
Classified real estate advertising in newspapers gained from $2.6 billion in 1995 to $4.6 billion in 2006. In the past two years, classified advertising has declined 23% and 38% respectively, bringing real estate advertising to $2.5 billion, or approximately 1995 levels.
As I pointed out in an earlier post, the combination of a sharp decline in home prices and home sales has drastically reduced the total pool of available commission dollars to fund marketing. I estimate that total marketing dollars have dropped from above $8 billion to about $4.5 billion over the past couple of years.
The chart to the right shows the relative lag in timing between the decline in sales volume, the decline in prices and the decline in real estate classifieds. While sales began to slow in 2005, prices continued to rise for a year, buoyed by a strong buying marketing and accessible credit. As prices hit an inflection point driven by the escalating decline in sales, advertising spending began to erode. Currently, all three components are in a sharp decline. As I’ve suggested in other posts, the prices will need to feel low enough
and stable enough to attract buyers to clear out the excess inventory. This appears to be happening in some markets, such as Florida. The recovery will be slow and challenging.
What does it mean for real estate classified advertising? As I’ve postulated in my Kelsey presentation and other posts, the overall pool of agents with enough money to invest in a strong multi-platform marketing campaign will have shrunk dramatically from the peak in 2006. Advertising will continue to be a meaningful differentiator for leading real estate agents. The challenge for local media players such as ourselves (NCI), is that we’ll need to demonstrate clearly to these agents why our marketing solution is a good value, in terms of time saved, market share won and brand built.
