• by Erik Sass , April 25, 2007

These days, newspaper companies are running for shelter--but they're not finding it in a traditional stronghold: real-estate classified ads.

Based on a deep drop in March home sales, according to figures from the National Association of Realtors, first reported by CNNMoney.com, newspapers are feeling the heat. In March, sales of existing homes fell 8.4%, compared to February, the steepest month-to-month drop in 18 years. On top of newspapers' other woes, the reversal in a key classified category posting positive results in 2006 signals an acceleration of the medium's already rapid decline.

Real-estate classifieds were, until recently, one of the few areas where newspapers were enjoying revenue growth. But beginning in the fourth quarter of 2006, they joined the automotive and job-recruitment categories in posting year-over-year losses. According to the Newspaper Association of America, overall real-estate classified revenue slipped 2.26%, down markedly from a 10.5% growth rate in the third quarter.

The March drop to an annualized rate of 6.12 million home sales exceeded even the pessimistic predictions of economists, who had forecast a 3.5% decline from February's 6.68 million, ending at about 6.45 million. The largest one-month drop since January 1989, when the housing market decline heralded a widespread recession, the March malaise is sure to squeeze newspaper real classified listings, which deal almost entirely in existing homes.

According to analysts, the housing market slump is due to a tightening of standards from lenders, in particular heavier scrutiny of so-called "subprime" mortgages--riskier loans made to home buyers with problematic credit histories, which have suffered a growing default rate. Housing market insecurity is also evident in the latest figures released by the Conference Board on Tuesday, recording a sizeable drop in the consumer confidence index.

"With the housing slump deepening in spring--the traditional jump-start of the home-buying season--that means newspapers' real-estate woes could continue for another year, contributing both to print classifieds decline and online growth slowing," says Ken Doctor, a newspaper analyst with Outsell. He says it's unlikely that the market will turn around--and advertising pick up--until spring of 2008.

During that period, Doctor forecasts more online competition as various sites struggle for a piece of a much-reduced pie. He thinks newspapers should look for real-estate sites like Zillow and Trulia to ramp up their Web sites, offering more interactivity and local data. That way, when the market's back in force, he adds, newspaper sites and services will be ready.

However, the current problem is underlined by a decline in new home sales, which serve as a bellwether for existing home sales, as families sell their old houses. Big home builders are reporting more new homes remaining in inventory and markedly lower sales than last year. CNNMoney.com said D.R. Horton, the nation's second-largest homebuilder, saw new home sales fell 37% in the first quarter of 2007, compared to 2006.

Although the NAA hasn't released industry-wide numbers for the first quarter of 2007, individual companies, including Tribune, Gannett, and NYTCO, are all reporting weakness in real-estate listings. The industry-wide dip in fourth-quarter 2006 resembles the 1.8% in auto classifieds in fourth-quarter 2003, and the 16.9% drop in recruitment classifieds in first-quarter 2001. Both declines reversed a long period of healthy year-over-year growth--and were followed by long-term declines, which continue to the present day.