New-Homes Sales Hit 12-Year Low; Mortgage Rates Continue to Drop

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This is not news to anyone tangentially related to the real estate industry, but new home sales have hit their lowest level in the past 12 years.    The average home price dropped 10% to $219,000 in December 2007 from $244,700 in December 2007.  November new-home sales fell 13% to an annual rate to 634,000.  This is the worst rate of home sales since 1995.  No one knows where the bottom of the real estate market is as. 

A combination of factors are driving these trends:

1) Low interest rates in early 2000’s: The Fed kept interest rates too low, too long to spur the economy.  In the real esatet market, this drove lots of new buyers into the market as well as driving up home prices unnaturally.  The spike in home sales pulled all new buyers into buying a home probably 3-5 years before they were ready, front loading a lot of profit and transactions in the market.  Now we are seeing the reverse, where there are fewer buyers than in a normal years because a significant portion of discretionary buyers are no longer in market.

2) New credit products: Simultaneously, the growth of the interest only and reverse amortization mortgage products opened up credit to many home buyers who weren’t qualified to purchase a home or enable buyers to buy more home than they were truly able.

3) Credit risk syndication: Ultimately, the biggest challenge was the syndication of risk in the mortgage ecosystem.  Mortgage originators were incentivized to write loans to any and everyone.  These loans were sold to the mortgage wholesalers who then sold then into financial buyers and institutions.  No one really was on the line to make sure than the loans were quality loans and that the home buyers could repay the loans.  This drove a boom of mortgages (many of them subprime) and now we are seeing the bust period.  Until there are better incentives throughout the mortgage food chain as well as greater transparency into the loan origination process for investors, the syndication or re-sale of mortgages will be challenging for some time (or at least until the market forgets the lessons of the past).

Here is the WSJ article: New-Homes Sales Hit 12-Year Low – WSJ.com

Here is a link to a spreadsheet detailing new home sales from the US Census Bureau.

At the same time, mortgage rates continue to drop.  BankRate‘s mortgage analysis shows that a 30-year fixed mortgage has dropped to 5.5%.  With the Fed expected to further cut rates, we could be in another period of unnaturally low interest rates such that buyers and refinancers may come back into the market in a big way.

Weekly national mortgage survey

  30-year fixed
15-year fixed
5-year ARM
This week’s rate: 5.57%
5.11%
5.35%
Change from last week: -0.18
-0.17
-0.32
Monthly payment: $944.11
$1,314.28
$921.38
Change from last week: -$18.79
-$14.72
-$33.15

Kayak for Real Estate? – Roost Launches Real Estate Metasearch, an anti-social network

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More innovation in the online real estate business.  A team from TotalMove and VacationSpot (acquired by Expedia) have partnered with the General Catalyst’s Joel Cutler, the venture capitalist behind Kayak.com, to create a new twist on real estate search.  Roost.com which publicly announced today is enabling consumers to get all the listings in a market from the MLS and use Kayak-like refinement and tool bars to search and sort the listings.  They get paid by real estate agents and real estate brokers when a consumer clicks on the link to get more information on a listing.  Great UI and smart business model that should be very scalable with relatively low incremental cost.  CEO Alex Chang is really smart about the real estate industry and how they are approaching partnerships with the MLS and brokers.

What’s Roost’s competitive advantage: NO BS!  Roost provides consumers with all the listings and is all about getting consumers to the listings they want as fast as possible.  Incredible!  Rather than using community and content like Zillow and Trulia to get people to browse to increase pagviews, the Roost model is the opposite – give homebuyers and sellers what they want as fast as possible and try to monetize that relationship.  Brilliant!

Roost launched today in a number of markets – Seattle, San Francisco and New York were not among the launch markets.  They will be challenged from a public perception basis of not being “nationwide”, but that is manageable.  Website is a bit slow today, but that could be due to traffic or the fact that they are still working out some of the kinks. 

Two thumbs up on the whole!

The Future of Online Real Estate? – ActiveRain Secures $2.75 Million Series A Investment

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Big news in the online real estate industry.  ActiveRain is one of the fastest growing professionally focused social networks and blogging networks on the Internet.  ActiveRain was founded about 18 mos ago and, in that time, they have attracted close to 70,000 real estate agents and mortgage broker members, who are very very dedicated to the service.  Their traffic has grown significantly since the beginning of 2007 and is generating significant consumer and real estate professional traffic.  What is most interesting though is that the major online real estate players – Zillow and Trulia, etc – are trying to attracting hyperlocal real estate blogging.  ActiveRain is the online firm that I can think of that has been able to attract significant real estate agent participation online. 

Today they announced a $2.75m strategic investment from HouseValues.  HouseValues is one of the original online marketing firms.  Ironically, HouseValues had a very active agent-to-agent message board called the MasterMind Forum, where agents provided advice and referrals to other agents.  ActiveRain expanded this concept exponentially.  ActiveRain is doing something really special.  I encourage everyone in the real estate industry and online marketing to check them out.  

Real Estate Blog – ActiveRain secures $2.75 Million Series A minority investment

Will Local Advertising Suffer in Recessionary ‘08? Print vs Online?

Interesting article from Greg Sterling on the dynamics of print versus online local advertising in a recessionary environment.  Two interesting data points:

1) The early 2000’s saw job classifieds shift dramatically from offline to online in the recession.  Employers liked the accountability, ease of use and better ROI of their online spend.  Companies like Monster and Hotjobs rode this wave, destroying the jobs section of the local newspaper. 

 2) Recently, we have seen a major pullback in the real estate and mortgage markets.  Ironically, in real estate, ALL of the online real estate advertisers have been punished.   In real estate, agents and brokers have actually returned to print advertising – newspaper and rack publications, at least in the short term. 

Why? 

1) Demographics: The average real estate agent is 51 years old.  In the real estate downturn, as many younger agents are leaving the market, the established veterans are maintaining their current media mix, in which online may be a smaller portion.

2) More Listings: As the real estate market cools, there are more listings on the market that need to be advertised.  Though a number of firms have developed online products to market listings (pay per click listings, enhanced listings etc), my sense is that most of them are ineffective.  The most effective online marketing system for listings is simply the MLS, Craig’s List, and a host of free sites which aggregate listings.

3) What’s Familiar: At the end of the day, with so many alternatives to advertise, in the real estate free fall, I believe agents and brokers are going back to what is familiar …  at least in the short term.  I think over the next three years online advertising will overtake print in real estate.  I think it will require the real estate market to get back on its legs first, or at least show that it is back on the upward curve.

Here is a link to the article: Will Print YP Suffer in Recessionary ‘08? « Screenwerk

Recruiting the New Marketing Team

As described in this article, HouseValues went through multiple evolutions of its media mix to get to where it is today resulting in a 10x reduction in cost per acquisition over the past five years.  Over the past five years, it was critical to evolve the marketing team to react the new skills required.  Five years ago, the HouseValues consumer marketing team was largely a buying organization where the core skill set was identifying media opportunities, negotiating with television stations, and monitoring execution.  The Internet, the nationwide expansion of the HouseValues business, and introduction of multiple products (seller leads, buyer leads, mortgage leads, portal impressions) required an evolution and expansion of the skill sets on the team.  See the below table for the evolution of the HouseValues Media Team:

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Below are six characteristics that you should look to develop or recruit on your marketing team;

1)     Strong Quant Skills: As your team is balancing multiple media – offline and online –  strong quantitative skills are critical in terms of balancing the media mix and determining the effectiveness of your media buys.  Historically, an individual attracted to media buying was not a naturally mathematically inclined.  Today’s media buyers and media managers must be able to make the trade-offs between different media based on quantitative metrics and results.  Trade-offs need to made on cost per acquisition versus volume of acquisition, local versus national media spend, brand exposure between pure direct response.  Balancing all these demands can be challenging.  Managers must be able to give media buyers clear direction and goals.  Media buyers need to be able to analyze results and communicate to managers why they are choosing the media mix they have.

2)     Balance:  Advanced media teams have always had to purchase multiple media – maybe print, TV, radio and maybe outdoor display/billboards.  The Internet has multiplied the number of places that a marketing team can advertise – search, banners, pop-unders, roll-overs, sponsorships, and more.  Every media team needs to be cross-trained in negotiating, purchasing, and managing traditional media types as well as the new media, particularly search.  I find most online advertising to be far simpler to implement and manage than the traditional media due to transparent pricing and limited creative options.  A the same time, marketing teams that are able to efficiently use print, TV, and radio will do well since the actual implementation of the campaigns is a barrier to entry for competition.

3)     Clear Communicators: With more media alternatives, it is critical for media managers and media buyers are able to clearly communicate WHY they have chosen to execute and test various campaigns and HOW those campaigns performed.  Media managers and media buyers also must communicate potential threats and opportunities to senior management – threats include increased competition or increased pricing from publishers; opportunities include new media or reduced pricing opportunities as well as buyer power in publisher relationships.

4)     Embracing Experimentation: The Internet has increased competition at every turn.  Media need to consistently experiment with new media and new creative to keep pushing the boundaries of what is known.  With every media business, costs increase to reach the marginal eyeball or consumer.  Thus, it is important to consistently increase the reach of your message.  Buyers must also embrace the “scientific method,” which we all learned in high school.  Media buyers must test new media (channels, times, days, segments, behaviors) and new creative implementations while holding as many constants as possible.  Then, test, measure, refine, and repeat. 

5)     Growth through Creative:  The creative implementation matters a lot.  Smart quantitative media buyers are very good at optimizing the buys.  Buying smartly with the same creative implementations will get you only so far.   Regularly testing and pushing your creative implementations is necessary for every media business.  You can be surprised at the results.     

6)     Familiarity with Product Management:  Search is becoming an important part of your media mix.  A strong marketer will understand the implementation of good natural search / search engine optimization strategies as well as the dynamics of social networking.  Though there are good consultants to help with search engine optimization and social media strategies, having a strong familiarity with search engine optimization and social media will help in identifying the right tactics to drive additional consumer awareness of your products.

Zillow’s hiring will cool in 2008

Interesting article from John Cook’s Venture Blog today.  Zillow entered online real estate in 2005, right before the real estate market started to cool at the end of 2005.  The company has grown like mad both from a traffic and headcount perspective.  For some reason, Zillow spoke with John Cook today to talk about their hiring plans for 2008 – a move which is very very unusual for a private company.  Zillow is reducing their hiring rate adding only 16 new employees in 2008 which is about 10%.  2008 should be a low point for the online real estate industry, so it a smart move for Zillow to reduce hiring (or perhaps even downsize as the other firms in the industry have done).  Zillow had great timing in raising another $30m in Sept 2007 from Legg Mason right before the real estate bubble started to lose air.   

Zillow’s hiring will cool in 2008