On Tuesday, the other shoe dropped. With mortgage rates now north of 6% and the stock market officially in bear territory, two of America’s most prominent real estate brokerages instituted large-scale layoffs and halted expansion efforts.
Redfin CEO Glenn Kelman said the brokerage/listings platform made the tough decision to lay off 470 workers across several divisions, including its engineering department, RealTrends reported Tuesday.
“We raised hundreds of millions of dollars so we wouldn’t have to shed people after just a few months of uncertainty,” he wrote in a filing to the Securities and Exchanges Commission, Brooklee Han at RealTrends reported. “But mortgage rates increased faster than at any point in history. We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive. If falling from $97 per share to $8 doesn’t put a company through heck, I don’t know what does.”
Meanwhile, as reported by Matthew Blake at RealTrends, venture-backed Compass laid off 450 workers, halted expansion plans and even briefly paused trading of its stock, which had fallen from a debut price of $20.15 in April 2021, to $4.51 a share. Compass on Tuesday said that it has shut down Modus Technologies, a Seattle-based company that Compass bought in October 2020, heralding its entry point into the title and escrow space, RealTrends reported. It also plans to reduce costs by not backfilling roles and by getting out of an undisclosed number of real estate office leases.
Both Redfin and Compass are considered disruptors in the real estate industry, but neither has managed profitability. Redfin is rare in that it has salaried real estate agents as opposed to independent contractors. Its foray into iBuying has hurt its bottom line, and its business model is vulnerable to sudden shifts in the market. Compass, which lured top-performing agents with high commission splits and large signing bonuses, has struggled to contain costs.
The uptick in mortgage rates from the 3% range in January to over 6% in June and resulting drop in home sales volume has put immense pressure on virtually all real estate brokerages and mortgage lenders over the past two quarters.
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It reached a tipping point this week following a worse-than-expected report on inflation on Friday and corresponding speculation about what the Federal Reserve would do this week to combat inflation. Many Fed observers expect the central bank to raise rates by 75 basis points on Wednesday. It is likely to trigger more layoffs across the real estate and mortgage industries.
Such market volatility has led to sleepless nights for real estate agents and LOs as well as buyers and sellers in recent few days.
“Interest rates are obviously rising and they are probably going to go up quite a bit again this week, so I’ve got buyers that are under contract now, but not closed and they are all texting me going, ‘Oh no, look at this,’” Anne-Marie Wurzel, who leads a top real estate team for Mainframe Real Estate in Orlando, Florida, told RealTrends. “But I tell them that this is why the lender and I wanted them to lock in on a rate and close a couple of days early so they could keep their rate. So buyers are getting concerned.”
Melissa Cohn, a regional vice president at William Raveis Mortgage, described Friday and Monday as “a bloodbath.” Industry pros are going to have to grin and bear it until stability in the market is achieved, but a return to normal will happen, she said. It’s just not exactly clear when.
“It’s nonsensical – rates don’t go up 50 basis points in three days,” she said. “This is just an overreaching concern about the Fed not being proactive enough and looking for real guidance.”