Editor’s note: The following post was made by Inman News Publisher Bradley Inman on the Inman News Blog. Click here to follow the discussion this post sparked or to join in.
Time to be sober, even if you are cool
The housing market is suffering from slow sales and declining values and it has since late 2005. The downturn is caused by a credit squeeze on first-time buyers, a rapid climb in inventory, rising interest rates and a shakeout in the market, relieving it from speculators, fraud and too much liquidity.
The next shoe to drop is the squeeze on real estate marketing dollars. While the newspaper industry enjoyed a temporary upturn last year as part of this, that is coming to an end.
Why? Wallet size. Agents pay marketing; the people who wake up every day without a job and without capital to frivolously spend (except during a frivolous housing boom). Their wallets are nearly empty as the rewards from the boom thin out quickly. Fewer sales equal less commission dollars earned. With an upside-down P&L, marketing is the first to go.
Online companies argue that they are exempt because of the movement of ad dollars from offline to online. But application providers, lead companies and firms that depend on sponsored branding and AdSense products will feel the hurt from a sour housing market.
New companies such as Trulia and Zillow, while benefiting from a higher profile, face a particular challenge because they are unproven business models. They both seek industry ad dollars in one form or another. It must be difficult.
Web 1.0 companies had the benefit of a crazy housing market. If they didn’t survive — most did not — it was because they did not manage their funds well or execute smartly. Agents were flush with cash and were willing to experiment and innovate.
The nature of Realtors who engage online is to innovate, but now they are doing it on blogs and social networking platforms like Active Rain, which cost them nothing but sweat equity.
Mooresville, N.C., Realtor Diane Aurit tells the story of getting an e-mail from a fellow Active Rain Realtor asking if she wanted a referral, as one of his clients was moving to Mooresville. “He read my bio on Active Rain and felt I would be a good fit with his clients and I finalized their sale this week,” she wrote.
Nevertheless, while consumer adoption of the Web is increasing, online home buyers will also thin out due to market conditions. Dreaming about home buying peaked in Q1 of 2005, when subprime made it possible for almost anyone to own a home. Online real estate traffic soared. Today, foreclosure sites have the strongest growth.
People avoid checking their online stock quotes when the market is free falling, and they aren’t spending much time thinking about real estate, as the market turns bad. The Internet does not make home buyers.
This is a good time for all sectors of the real estate industry to spend their funds wisely.