For the 378th episode of Mail Right Show, Jonathan Denwood and Robert Newman discuss the situations of the real estate market in the last two years and the current market to find out if the real estate lead generation industry is collapsing. Robert Newman is the founder of Inbound REM, an inbound marketing agency, and a real estate SEO specialist with over a decade of experience. On the other hand, Jonathan Denwood is the founder and CEO of Mail Right, a company that builds beautiful websites on WordPress and provides a suite of digital tools in a single, simple-to-use package. This episode highlights real estate professionals’ problems in 2023 and what to expect in the real estate market in the following years.
Current Real Estate Market
In 2023, you can see the overall interest in real estate drop between interest rates and a lowered inventory in most marketplaces. Nobody’s published the number yet, but based on Google Insights and other tools, 30% fewer people are doing searches this year than last. Using that number, if 90 million searches were happening this year and 60 million searches are happening in 2023, that would mean that you have 30 million fewer times to try to capture somebody to turn them into a lead if you’re doing some marketing. Then let’s add the information about the average Realtor with a budget of $100 per month to market themselves. They utilize their budget, guerrilla marketing, and sweat equity. And it certainly won’t be through paid promotion. They would post on social media themselves, but most realtors won’t do anything. Furthermore, most Realtors are leveraging listings, but some do not understand that they could do the same thing using other people’s listings and act as the buyer’s agent.
What happened in 2021 and 2022 in the Busiest Real Estate Markets Ever?
Paid advertising usage from the real estate industry has dropped by almost 50% between 2022 and 2023. There are far fewer listings for people to advertise. They understand how paid work is working far less. The numbers seem to indicate that that’s where people are at. We’re probably looking at somewhere between a 30 and 40 % decline in advertising. So is the real estate lead generation industry collapsing? Well, it is shrinkage, for sure.
What do you think happened with people using paid advertising services and real estate marketing companies? They’re spending a few thousand dollars a month. Fewer searchers mean less response for those of you doing paid advertising, and you should expect a 30 to 50 % decline in your results at minimum in 2023. So, you take 30 % to 50 % fewer results, plus a 3,000 to 7,000 dollar budget. Now, say the real estate lead generation industry is collapsing; you are currently spending the same amount of money instead of making 20-40, and that’s a much narrower margin for you to be. You’re like working on a much smaller margin for error, and that $7,000 you’re spending seems like a lot more money to you, even though it hasn’t changed.
We’re not collapsing the way that everybody thought we were. But inventory is still fairly rare. Home prices are still shooting up in busy marketplaces. But what has changed is that you don’t have 20 or 30 properties anymore. When you get a single property, there’s no competition. That takes you time to sort through all the offers so that you can ask the proper consultant to your client and say, we have 20 offers. You must know all those offers to turn around and consult with your client unless somebody comes in, no contingencies, no anything, million to $200,000 above asking all cash. And then, obviously, in that circumstance, you’ve got one offer, and you just run with that. And then every other 19 people who bid on that property don’t get the property.
What you can do now is, examine the marketing budget and attentively consider the advice of others, which holds significance. Investing in video production, search engine optimization (SEO), and enhancing website content reduces expenses on paid lead generation platforms such as Zillow, Google, and Facebook advertisements. Reinvest that towards developing website content, including video content, and explore alternative marketing avenues. In essence, reassessing the marketing strategy in the next six months is essential.
Prediction On What Will Happen To Real Estate And Towards the Lead Generation Industry
In 2023, we will see more regional banks fail, but we won’t see that impact on the real estate business. The ongoing events can be attributed to the adjustment within the cryptocurrency industry. The failure of one of the big crypto platforms is rolling out, hitting everybody.
Theoretically, banks are supposed to be gambling at very large terms. They’re supposed to be making safe investments, and they’re supposed to be getting a slightly higher percentage return. When a bank is managed well, it can make much profit, even up to a trillion dollars. But some laws created by President Trump changed the rules for banks and made them less safe. The idea was to make things easier for banks like President Clinton did in the 1980s with the Glass-Steagall Act. They thought they would take care of themselves if they let the markets be free. But this meant that people could take bigger risks. Smaller banks, especially those in specific regions, were more at risk. It was similar to what happened in Silicon Valley, where they believed no one would immediately take their money from the bank. But they were wrong. In less than 24 hours, people took 42 billion dollars from their accounts because most depositors were from a small group. This caused a big problem because they needed more money to keep the bank running smoothly.
We won’t see that much impact on how people loan money. The impact will come from interest rates, which will be raised again. In various markets, numerous customers have expressed their interest in purchasing properties at the current interest rates. Everybody was waiting to see if interest rates were decreasing; however, it has become evident that interest rates are not declining but remain stable. Thus, individuals who were previously hesitant have now actively entered the market and are acquiring homes at interest rates of around 8-9%, and people are now buying homes at that price. It is important to note that while this trend may temporarily slow down the market, potentially leading to a decline in 2024, if the Federal Reserve maintains its stance and individuals stick to it, despite the possibility of a recession, these decisions will ultimately prove beneficial for the market.
In 2025 or 2026, after a short recession, we will watch business finally return to normal. And by normal, it means interest rates fall somewhere between the 5 and 7 % rate range, the historical average in the US. But it could also depend on the unemployment situation.
We’re going to see home prices slowly drop from market to market. According to Redfin’s February 2023 report, home prices in California have experienced a decline of 6.5% compared to the same period last year. Additionally, a recent national report indicated a 3% decrease in home prices nationwide. On average, there has been a year-over-year decrease of 33.4% in the number of homes sold. Specifically, in February, the number of homes sold dropped from 25,000 to 16,000 compared to the previous year. Insights gathered from mortgage officers and real estate agents support the notion of an imminent market shift. And we can be in dramatic drop aligned with the initial predictions made in 2022. Initially, a 20% decline was anticipated, given the perception that national prices were inflated by approximately 20%. However, the current decline of 6.5% suggests a more gradual slide than initially predicted.
Types of buyers will change. We are looking at a market where people sitting on capital are looking for suitable investments and trying to hedge inflation, and real estate is a great place to go. So, real estate may not be dead or dying. But the types of buyers that we see and who’s making moves inside it, it’s going to change. Some entrepreneurs buy two or three properties; they’ve already got equity elsewhere and leveraged that to buy more. The interest rate doesn’t scare them because they use the property as a business.
Efficient Marketing Is Crucial. You can reexamine how your marketing gets real estate leads. What brokerage do you work with? How do you operate as a business model? These times we live through will go to the ones who win the efficiency and marketing games. That is the other prediction. So if you’re not examining your marketing right now, how you’re spending your dollars, and how efficient your business is in acquiring business and names and then marketing to them, you’re making a significant mistake.
