Real estate firms Compass and Redfin revealed plans to conduct layoffs on Tuesday as surging mortgage rates trigger a slowdown in the once-booming housing market.
Redfin’s regulatory filing cited “market conditions” in the firm’s decision to cut the company’s headcount by about 470 employees, with cuts to occur throughout the month of June.
CEO Glenn Kelman provided further details in a blog post – noting that the layoffs accounted for 8% of total staffers.
“With May demand 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,” Kelman said in the post.
“Mortgage rates increased faster than at any point in history,” Kelman added. “We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive.”
The average rate of a 30-year fixed rate mortgage was 6.28% as of Tuesday, according to data from Mortgage News Daily. Rates were hovering near 3.5% as recently as January.
Kelman said the impacted workers would receive a minimum of 10 weeks of base salary, as well as three months of health care coverage and severance pay equal to estimated value of lost productivity or sales bonuses for agent and support roles.
Redfin shares were down more than 5% in trading Tuesday afternoon. The stock has plunged nearly 80% so far this year.
The Compass layoffs will impact about 10% of the company’s overall workforce, or approximately 450 workers, the company said in a regulatory filing. The filing noted that Compass is conducting a “wind-down” of Modus Technologies, a real estate software platform the company purchased in 2020.
“Due to the clear signals of slowing economic growth we’ve taken a number of measures to safeguard our business and reduce costs, including the difficult decision to reduce the size of our employee team by approximately 10%,” a Compass spokesperson said in a statement on the decision.
Compass shares sank about 12%. The real estate giant’s stock is down about 56% so far this year.
Home sales and prices surged during the COVID-19 pandemic, fueled by lenient borrowing conditions and a dearth of available inventory. But interest rates have skyrocketed in recent months as the Federal Reserve and other central banks move to confront decades-high inflation.
Mortgage demand recently hit a 22-year low, according to data from the Mortgage Bankers Association. The volume of applications has declined as prospective homebuyers react to the difficult financial climate.
Real estate isn’t the only sector under pressure as the US economy teeters toward a potential recession.
Earlier on Tuesday, cryptocurrency trading firm Coinbase announced plans to lay off 18% of its workers — joining other crypto companies that have cut workers during a major downturn in digital assets.