Homebuilder KB Home is used to working with hammers and nails. But this year, the company is putting some virtual tools in its belt. Later this month it will build its first model homes in the metaverse with a new community in Decentraland that allows customers to visit and customize virtual homes. The company views the offering as a way to enrich the customer experience and grow awareness for its real-life homebuilding capabilities, according to Chief Marketing Officer Amit Desai.

“The metaverse promises to allow us to connect the digital world and the physical world together,” Desai said.

Making such connections while deploying new marketing methods will take on an added urgency for homebuilders and real estate companies this year as marketers try to spur buying interest amid a deteriorating business climate. Average national mortgage interest rates are nearing 7%—more than double rates from a year ago—and inflation continues to affect the prices of everyday items. Brands must combat these forces as they attempt to convince customers that the time is right to buy a home.

Unlike at the beginning of the pandemic, when rates were low and consumers were flush with cash and eager to invest in their homes, the category is seeing declines as many consumers take a wait-and-see approach. Some brands are decreasing marketing amid employee layoffs. Experts expect that brands will switch things up in 2023, with more targeted marketing designed to reach specific groups of customers, as well as more investment in digital areas such as the metaverse and virtual tours.

“The constraint on the market is these very high rates that have really moved housing out of reach for a lot of growing families,” said Sam Chandan, director of the Chao-Hon Chen Institute for Global Real Estate Finance at New York University's Stern School of Business.

Marketing pullback

As a result of the unfavorable market conditions, many brands are pulling back on marketing, a trend real estate experts expect will continue through the early part of 2023.

In early 2022, real estate brokerages including Zillow and Compass outpaced their 2021 ad spend, but in recent months, spend has taken a dip, according to data from advertising intelligence platform MediaRadar. Ad spend was up 16% year-over-year in the second quarter, but in the third quarter, it fell 12% year-over-year to $523 million. The homebuilding category is also beginning to show a decline, though less pronounced, MediaRadar found. In the third quarter of 2022, marketers such as KB Home increased ad spend 13% year-over-year, yet ad spend in this past October was flat over October 2021.

In particular, TV spending is falling. For the three-month period ending Dec. 12, real estate brands spent $160.3 million on national TV ads, an 11% drop from the year-earlier period, ad measurement firm iSpot.tv found.

“We’re seeing companies tighten their belts in a variety of ways, and that’s going to force a lot of real estate companies to slim down and get creative with their marketing budgets,” said Tommy O’Shaughnessy, VP of marketing at Clever Real Estate, a St. Louis-based startup that connects home buyers and sellers with real estate agents. He noted that brands will focus on channels that drive measurable returns on investment.

In recent months Compass and Zillow have laid off hundreds of staffers; Clever, too, has also recently laid off portions of its workforce, according to reports.

In other industries, brands have looked to previous times of economic turmoil to inform their marketing playbook. But relying on historical models makes less sense for real estate marketers because the market during the recession of 2008 was drastically different than the market now. In the mid-2000s, there was an oversupply of houses from new construction, and fewer buyers around to purchase them, which led to price pressure. Today, the landscape is more nuanced. There are fewer homes available but plenty of buyers—though rising rates may change that.

In November, construction spending on single-family housing projects fell 2.9%, according to data from the U.S. Department of Commerce. 

“My overall sense is that in 2023, we will see some significant geographic variation in the performance of the housing market,” said Chandan. “Some of the advertising will be more targeted to areas of the country where activity will be stronger,” he said. He noted that regions such as the Sun Belt are enticing to new homeowners because of lower costs at a time when many consumers can work remotely for companies in more expensive regions such as the East Coast. 

Chandan added that some market distress could create opportunities for real estate platforms that specialize in iBuying, or “instant buying” of homes they then resell—also known as flipping. Such brands will use advertising to build awareness with consumers looking to sell their homes quickly, Chandan predicts. He also expects new interest in renting homes as another offshoot of the so-called “sharing economy” popularized by millennials.

Deploying virtual tools

Investing in new virtual tools—as KB Home plans to do—is one area Chandan expects many real estate brands will be exploring this year as they seek to improve their experience for customers.

“It’s unclear at this point whether virtual tours or metaverse experiences will have an impact on aggregate home sales volume, but I think what is clear is that home sellers and homebuilders deploying these platforms will be able to reach prospective customers more effectively and will be able to provide prospective homebuyers with a richer experience,” said Chandan, noting a “significant competitive advantage.”

In June, Compass began showcasing luxury listings through virtual reality. For example, a three-minute video for a $20 million listing in Kona, Hawaii, immerses prospective buyers, who may be too busy to visit in person. “We expect this technology to continue to play a significant role in luxury listing marketing in 2023 and beyond,” said a Compass spokesman, adding that the company is looking for ways to optimize marketing and advertising dollars.

Online real estate company Opendoor is also getting into virtual reality as it tries to maximize its marketing spend with new types of media, according to David Corns, who joined as VP of marketing last year. In the months ahead, Opendoor plans to test new out-of-home activations along with both national and local media buys, he said. Opendoor’s media agency of record is Deutsch LA.

“The real estate market right now is anything but predictable,” Corns wrote via email. “That’s why we’re trying new approaches to raise awareness and reach customers.”

Zillow recently switched up its approach as well—by appointing a new creative AOR. After a six-month review, the marketer appointed 72andSunny its new agency last month. The shop plans to work with Zillow on “creative campaigns and brand-building initiatives,” a Zillow spokeswoman told Ad Age in December. The shift follows a CMO change at Zillow—last spring, former CMO Aimee Johnson left the brand after more than three years. Marketing is now led by Ravi Kandikonda, senior VP of marketing. Amid a revenue decline, Zillow recently warned of slowing business.

For KB Home, along with enhancing the customer experience, the upcoming metaverse activation will also help the brand collect valuable customer data, Desai said. The company will refresh its experience and model homes and periodically introduce new architectural styles and design choices. Such information could help the marketer make choices for future endeavors and real-life homes.

“We are going to get a rich set of data in terms of who’s coming to the experience and how they are interacting with it,” Desai said.