Wanted: real-estate classified ads

Newspapers start seeing declines in key category as housing market stays cool

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The newspaper industry's housing bubble is about to burst.

For all publishers' myriad problems, real-estate advertising has been a source of uninterrupted growth since the mid-1990s, as a combination of low interest rates and baby-boomer disposable income led to an unprecedented housing boom. The cooling of that boom over the past two years hasn't slowed newspaper ad sales-which surged as houses stayed on the market longer, requiring more ads-and real-estate ads grew to $4.6 billion, about 8% of newspaper revenue, from $2.6 billion just a decade earlier.

But the end was in sight in January, when major publishers including Tribune Co., McClatchy Co. and Lee Enterprises posted real-estate-ad declines in the high single digits. Economic reports projecting steep falloff in new housing sales and starts make further ad declines all but inevitable.

"You're talking about 11 straight years of growth, and that's unrivaled by any other category," said Charlie Diederich, VP-classified advertising for the Newspaper Association of America, who predicts the real-estate growth streak will end this year. "If we don't find a new growth area, Wall Street is going to keep beating us up."

Mr. Diederich argued that newspapers' real-estate problems are cyclical, and that annual growth will return once the comparisons are free of yearly totals inflated by speculative buying and heavily promoted developer closeouts. But classified-industry experts and real-estate agents argue the category could be dominated by online players by the time it revives.

"A lot of sellers think the newspaper is a key marketing tool, but actually it's not," said John Most, whose agency handles creative advertising duties for the National Association of Realtors as well as some major broker groups including Prudential. "Newspapers just aren't as interactive."

More effective for brokers, Mr. Most said, is brand advertising in the paper that draws users to a website where the listings are. But Jim Townsend, a principal at ad consultancy Classified Intelligence, said research has shown nearly 80% of home sellers start their searches online, not in the newspaper. He said the greatest threats to newspapers are seller-built websites and listings sites.

"A lot of the realtors we talk to tell us the only reason they keep advertising is that their clients expect to see the ad in the paper," Mr. Townsend said.

"My own attitude is that this has more to do with being cyclical than it has to do with the internet," said newspaper analyst James Goss of Barrington Research Associates in Chicago. "But it's never good to have negative comparisons, especially when it's the only thing that was positive."
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