Builders and Realtors Spend More on Advertising in Soft Housing Market

Operating on the theory that there really is a silver lining in every cloud, someone had to be making out in the current housing crunch.

Now we know who.

Builders and realtors are spending tons of money these days on advertising and marketing as they scramble to woo prospective buyers in a buyer’s market.

The ad agencies and marketing firms are all privately held and don’t like to talk about earnings. (One marketing specialist did let on recently that she has more business than she can handle.) But a clue as to what’s going on these days comes from Standard Pacific, the Newport Beach-based residential builder.

Announcing its second-quarter financial data recently, Standard Pacific said earnings fell 35%, even though net revenue was slightly higher than in the year-earlier period.

Why were earnings so much less when sales stayed the same?

The official word was that “earnings continued to be impacted by both a softening of the California housing market and a change in product mix.”

What that means, in English, is that to battle the “softening” market, Standard Pacific has been spending a lot on advertising--money that last year went straight to the profit column, said April J. Morris, vice president for finance.

“In the 1989 second quarter, we had to do little if any advertising” because people were lining up and begging to buy homes at almost any price, Morris said. “Now, the number of ads being published is up considerably.”

Morris wouldn’t give any specifics about her own company’s ad budget except to say that the expenditures accounted for a considerable drop in profit.

Also eating into the company’s profits--as is the case with most builders--is the buyer-driven shift away from high-priced homes toward more moderately priced homes.