What Real Estate Industry Layoffs Could Mean for U.S. Housing Markets

In June, amid high interest rates and slowing home sales in the U.S., Redfin, Compass and other real estate firms laid off hundreds of agents.

The job cuts may indicate that brokerages anticipate that the cooling of the U.S. housing market has only just begun, putting an end to the period of record-low mortgage rates, bidding wars and high prices that emerged after the onset of the pandemic. 

Though it may be prudent to take note of the job losses, and of the market turnaround, it’s unlikely that buyers and sellers will be impacted as immediately or as drastically by the conditions that the agencies are bracing for, according to experts.

“Buckle up—the market is slowing down,” said Eric Sussman, an adjunct professor of accounting at UCLA Anderson School of Management and managing partner of the California-based real estate investment firm Clear Capital Inc. 

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That shouldn’t come as a shock, given that the average 30-year mortgage rate has nearly doubled from 3.1% at the start of the year to 5.81% as of June 22, the highest rate since 2008.

The increased cost of borrowing has led to a drop in demand from buyers. From April to May, sales of existing homes dropped 3.4%, with deals 8.6% lower than in May 2021.

That decrease in volume was a blow to brokerages. At Seattle-based Redfin, May demand was 17% below expectations. 

“We don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects,” wrote CEO Glenn Kelman in a statement to employees on the Redfin company blog in June.

Management at Compass and Redfin may be acting with caution ahead of any further slowdowns in the market, Mr. Sussman said. Redfin announced that it would reduce its workforce by 8%, or about 470 jobs, while Compass cut its staff by 450 employees, about 10% of its staff.

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“You’re staffing a company to match a market, and then the market shrinks—so the company [staffing] needs to shrink to match it,” Redfin Vice President of Communication Mariam Sughayer told Mansion Global.

“Housing is so reactive to downturns,” Ms. Sughayer added. “That’s the nature of real estate in general. We’re so connected to what’s happening in the economy and the consumer mindset.” 

Redfin’s CEO predicts the downturn could be long. In his note to employees, he said the company was bracing itself for “years, not months, of fewer home sales.”

A Compass spokesperson said that “due to the clear signals of slowing economic growth, we’ve recently taken measures to safeguard our business.”

“Our goal is to be the best company in the world at empowering agents and these recent measures allow us to remain focused on that approach,” the spokesperson said.

Redfin and Compass aren’t alone in cutting staff. In May, brokerage REX Real Estate closed two of its Texas offices in, and Doma, a digital title, escrow and closing provider, laid off approximately 15% of its employees that same month.

The hot housing market that has been expanding since the start of the pandemic also pushed  the number of real estate agents in the U.S. to a record high, according to the National Association of Realtors. Throughout 2021 and 2020, more than 156,000 people became real estate agents—about 60% more than the previous two years.

“In a bull market, you just get bloated generally,” Mr. Sussman said. “In the real estate business, brokers are fairly easy to add. You provide some nominal amount of overhead, basic training and then let them go out and eat what they kill, so to speak.”

Compass, founded in 2012 in New York, expanded rapidly in 2018, hiring over 7,000 agents nationwide after a $450 million investment from Softbank. As of 2022, it had 100 offices across the U.S.

Like Compass, Redfin also went on a hiring spree, nearly doubling the number of agents on its roster from 1,399 in the second quarter of 2020 to 2,750 in the first quarter of 2022. 

Now, those same brokerages that added agents while the market expanded are starting to “prune the hedges” as sales volumes drop, Mr. Sussman said.

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“As companies develop, oftentimes they run into growing pains, and I think that is pretty much what happened,” said Timothy H. Savage, a clinical assistant professor at the NYU Schack Institute of Real Estate. “They just expanded too rapidly for current market conditions.”

Daniel Quan, a professor of real estate at the SC Johnson College of Business at Cornell University, noted that these brokerages are sensitive to sways in demand.

“Their profitability is very much dependent on volume,” he said.

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A More Nuanced Picture for Buyers and Sellers

Still, bad news for real estate firms may not be bad news for sellers and experts warn not to draw too many conclusions about the future of the housing market based on these layoffs.

“I wouldn’t infer very much from either of these, frankly,” Mr. Savage said.

Even though sales volume has dropped, home prices have not.

In June, the national median home price topped $450,000 for the first time, despite home sales slowing for the fourth month in a row, according to Realtor.com. Properties spent an average of 32 days on the market.

“It’s not as bad as it seems,” Mr. Quan said. “Even though we’re seeing the volume of sales drop because of the rising mortgage rates, prices are still elevated.” 

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As for whether prices will decline, experts are split.

“There’s no question you’re going to have a drop in prices,” Mr. Sussman said. “You just can’t have the rise in the cost of purchasing a home go up so much and not have an impact on prices.”

Would-be buyers should expect more of a housing rebalancing, rather than a crash, he added.

“Prices will drop and moderate,” Mr. Sussman said. “We have such a shortfall of residential housing to meet market demand over an extended period of time … so I don’t expect really broad base declines.”

In a report published in June, research firm Capital Economics predicted that the U.S. housing market would see home price growth decline by 5% by mid-2023 as a result of higher mortgage rates.

Other reports predict the housing market won’t be hurt so bad. Freddie Mac expects to continue to see home prices growth slow, but not decline. An April 2022 report predicts that single-family home prices would average 10.4% in 2022 and slow to 5% in 2023. 

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Redfin, too, predicts that price growth will slow in the short run, but that demand will rebound shortly.

“We believe in the long run demand for homes will continue to increase for the next decade at least,” Ms. Sughayer wrote in a follow-up email to Mansion Global. “Millennials are the largest generation and are just now becoming first-time homebuyers.”

For buyers, lowering demand could offer a window of opportunity for those who struggled to lock down a property during the pandemic.

“The housing market is in a lot of ways, a lot more balanced,” Ms. Sughayer added. “We’re hearing about buyers who are coming back into the market who may have lost five or 10 bidding wars in 2021—and now they feel like they have a shot.”

Even though interest rates are high, Ms. Sughayer said that buyers can be encouraged knowing there may be an opportunity to refinance their property later down the line.

“For a lot of people this really could be their chance,” she said.

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