Realtors, lenders in U.S. may rethink ads during downturn
NEW YORK, March 28 (Reuters) - The subprime mortgage crisis and faltering new homes sales are raising concerns about the risk of major spending cuts by a real estate industry that puts more than $10 billion annually into advertising and marketing.
Newspaper publishers could be most at jeopardy, analysts warn, given they attracted over one-third of the money spent last year on advertising by the real estate industry.
Even before the subprime crisis, newspapers were struggling to keep classified advertising for automobiles and jobs, said Ken Doctor, an analyst for market research group Outsell.
"It was the booming real estate market that kept them up," Doctor said. "Because there was so much real estate changing hands, newspapers were doing fairly well."
That may well change in the coming months. Even if real estate agents, homebuilders and mortgage companies maintain their marketing efforts, they could shift spending to cheaper types of media, such as the Internet.
"The successful agents realize that they need to market the home more efficiently and more effectively than they have in the past, in light of the turn," said Peter Conti, a senior vice president at research firm Borrell Associates.
He expects that to result in "a shift in the spend pattern" away from newspapers. "In some cases, the other channels are less expensive and you get more bang for your buck," he said.
An executive with Gannett Co. Inc. (GCI.N), which publishes USA Today and about 89 other U.S. newspapers, recently said the downturn in real estate advertising was sharper than forecast.
Chief Financial Officer Gracia Martore, speaking at an investor conference this month, said the publisher had been expecting a drop-off but "it has slowed in these first couple of months a little bit more than what we had anticipated."
As advertisers turn from newspapers to less costly media, Borrell Associates' Conti sees spending on real estate marketing dropping to $10.8 billion this year from an estimated $11.6 billion in 2006.
TWEAKING THE MESSAGE
David Hochberg, president of Townstone Financial, a Chicago-based a mortgage broker, contends that it would be a mistake to scale back on marketing in the current environment.
"If you don't go out there and continue to spend the money on advertising and tweak your message for people who are still looking, then someone is going to come in and take your business," he said.
Hochberg, whose marketing includes a talk-radio show on homebuying that he sponsors, added that by cutting marketing "you feed into this paranoia that the world is ending."
For more than a year, the U.S. housing market has witnessed a steep downturn, with high prices and rising interest rates undermining the market. Now the industry is grappling with an abundance of supply, while home builders have cut prices and shrunk their businesses to wait out the downturn.
Another threat emerged in recent months in the subprime segment of the U.S. mortgage market as default rates have risen. At least 20 lenders in the subprime mortgage sector, which serves borrowers with poor credit histories at high interest rates, have gone out of business as a result.
New Century Financial Corp. NEWC.PK, for example, has stopped making loans this month and has been blocked by several states from making new mortgages.
But Merrill Lynch analyst Lauren Rich Fine said in a note to clients earlier this month that New Century "was not a significant advertiser in 2006" and said that "advertising exposure to subprime (is) seemingly limited."
Data from TNS Media Intelligence shows that New Century spent roughly $300,000 on advertising last year, compared with the $55 million spent by the largest mortgage lender Countrywide Financial Corp. CFC.N. Countrywide could not immediately be reached for comment about its spending plans.
Overall, finance and mortgage companies spent $1.36 billion on advertising last year, according to TNS.
How much that figure will be cut by the meltdown remains to be seen, but Townstone Financial's Hochberg said there are still many potential homebuyers waiting to be reached.
"If you don't continue advertising, in my opinion, you're going to miss out on the people who are out there," he said. (Additional reporting by Robert MacMillan)
