In news that surprised no one, the Federal Reserve raised interest rates…again.
While many experts are guessing the FED will pump the brakes on rate hikes, the real estate market is still recovering.
As of March, a 30-year fixed mortgage came attached with a 7% interest rate.
Combine historically high interest rates with rising inflation, and you get a large group of consumers with little purchasing power.
With the real estate market in flux, how are industry advertisers responding?
In a few words: real estate ad spending is mirroring the volatility of the market.
Advertisers Started the Year with Good Intentions
In 2022, 11.9k real estate advertisers spent more than $2.3b on ads, representing decreases of 15% and 23% YoY, respectively—and if it wasn’t for jumps in Q1 (19% YoY) and Q2 (2%), those numbers would be higher.
Overall, spending in the year’s first half increased by 10% YoY to $1.3b as the market maintained a pace that brought home sales to their highest mark since 2007.
In Q1 2022, house prices climbed by 18.7%, according to the Federal Housing Finance Agency House Price Index (FHFA HPI®).
William Doerner, Ph.D., Supervisory Economist in FHFA’s Division of Research and Statistics, said, “High appreciation rates continued across housing markets during the first quarter of 2022.” He continued, “Strong demand coupled with tight supply have kept prices climbing. Through the end of March, higher mortgage rates have not yet translated into slower price gains, but new home sales have dropped during the last few months, with a significant falloff in April.”
A decrease in ad spending followed.
In Q3, spending from real estate advertisers fell by 21% YoY, followed by a 45% decrease in Q4.
Overall, real estate spending dropped by 34% in H2, which makes sense given that July served as a launchpad for rising mortgage interest rates.
Real Estate Website Advertisers Continue to Spend
Advertisers in three corners of the real estate market—realtors, real estate websites, and mortgage lending—accounted for 75% ($1.8b) of the industry’s investment last year.
Advertisers for realtors, including those from Apollo Global Management Group (Better Homes and Gardens Real Estate, Coldwell Banker Real Estate, etc.), Compass, and Lead & Prosper (Ideal Agent), spent a combined $1b.
Meanwhile, mortgage lending advertisers such as American Financing Corp, New Day Financial, and Rock Holdings (Quicken Loans and Rocket Mortgage) spent $232mm.
Advertisers in those corners saw their budgets decrease; realtors by 7% YoY and mortgage lenders by 53% YoY.
However, real estate website advertisers—like Apartments.com, HomeLight, and Zillow—experienced the opposite. In 2022, their ad spending increased by 16% YoY to $475mm.
For the advertisers at Apartments.com, spending came in tandem with the company’s heightened focus on the rental market.
In April, Apartments.com launched a campaign as many renters prepared for their first big move in the post-pandemic world.
Patrick Dodson, Vice President of Marketing at Apartments.com, said, “The past two years have changed how many people work, live, socialize, and even parent. With our 2022 marketing campaign, we’ve evolved our brand to reflect the changing behavior of renters across the country.”
The campaign ran across several channels near and dear to the hearts of renters, including TikTok, Instagram, Snapchat, YouTube, and Facebook.
It also included TV spots and OTT ads on HBO Max, Paramount+, and Hulu. Advertisers even allocated dollars to audio ads on Spotify, Pandora and other popular platforms that are taking advantage of the rise of audio advertising; Statista projects digital audio advertising to reach $8.95b in 2023.
What’s in Store for Real Estate Advertisers in 2023?
Inflation reached a 40-year high in 2022. Meanwhile, in February 2023, mortgage interest rates reached their highest level since the end of the year.
Now, the collapse of Silicon Valley Bank is causing ripple effects that’ll continue to impact not only homebuyers but advertisers as well.
“With the Fed committed to monetary tightening until inflation is decidedly moving toward 2%, borrowing costs will remain elevated, keeping housing affordability at the top of the year’s list of challenges,” said George Ratiu, Realtor.com’s Director of Economic Research, in an emailed statement.
For homebuyers, this means they’ll pay more to borrow the funds necessary to secure their next home—and this doesn’t even consider the general financial anxiety many of them are experiencing.
The debt ceiling is also unsettling.
“[A] looming debt limit standoff could push rates back up,” said Orphe Divounguy, a senior macroeconomist at Zillow Home Loans. “This could raise borrowing costs, including mortgage rates, thus hampering an already cold housing market.”
The real estate market seems to be in more flux than ever before, but that hasn’t stopped advertisers from spending $245mm through February 2023.
Real estate advertisers were responsible for 63% ($155mm) of that investment, while real estate websites and lending companies chipped in 24% ($58mm) and $31mm (13%), respectively.
Here’s where those ad dollars went:
Advertisers, including Apollo Global Management, Carolwood Partners, and Compass, spent almost $78mm on ads in national newspapers; the above names spent 42% of the investment in newspapers.
At the same time, cable TV advertising reached nearly $35mm, thanks to investments by advertisers at HomeLight, OpenDoor Labs, and Redfin, who collectively spent $13.8mm.
Advertisers worked general print ads into their strategies, too. For example, Coldwell Banker Real Estate (Apollo Global Management) increased print advertising by 17% YoY between March 2022 and February 2023.
Real estate advertisers invested almost $30mm in paid social advertising through February; nearly 75% came from advertisers promoting real estate websites, including CoStar Group (Apartments.com and Homesnap), Noho Solutions (Orchard), and Zillow.
Apartments.com, in particular, spent heavily inside social’s walls, with Facebook and Instagram receiving almost all of that budget (94%).
There’s no denying the real estate market is in a strange spot, and advertisers are feeling it.
That said, some experts anticipate a course correction that will impact advertising strategies throughout the rest of the year.
Edward Seiler, Associate Vice President at Mortgage Bankers Association, said the growth of home prices should “soften, which, along with cooling inflation, should help bring more prospective buyers into the market during the spring homebuying season.”
If—and when—that happens, real estate advertisers will return to their spending ways.
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