Redfin layoffs portend grim future for housing market
Company says decreasing demand for homes has forced it to reduce workforce, save costs.
Seattle-based real estate company, Redfin, announced it is laying off 8% of staff as the housing market cools.
Redfin CEO Glenn Kelman sent an email to all Redfin employees about the layoffs on June 14. He said the decreasing demand for homes has forced the company to release hundreds of employees.
“To all the departing people who put your faith in Redfin, I’m sorry we can’t keep our commitment to you,” Kelman said in the email. “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.”
On May 5, Redfin released its 2022 first quarter report, which detailed revenued that exceeded the company's expectations by “tens of millions of dollars.”
The company expected that total revenue for the second quarter would be between “$613 million and $650 million, representing a year-over-year growth between 30% and 38% compared to the second quarter of 2021.”
However, 40 days later Kelman says demand is over 15% below expectations, a sign that the housing market is going south at an unprecedented rate.
Kelman also cited the increasing mortgage rates for why the market is cooling.
Mortgage rates rose from 3.29% in January to 6.28% as of today, per Mortgage News Daily. If a couple were in the market for a $1 million home, they would now likely be only able to afford a home around $600,000 on the same budget.
“A layoff is always an awful shock, especially when I’ve said that we’d go through heck to avoid one, and that we raised hundreds of millions of dollars so we wouldn’t have to shed people after just a few months of uncertainty,” Kelman said. “But mortgage rates increased faster than at any point in history.”
Kelman believes the housing market crisis is likely only beginning.
“We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive,” Kelman said, adding, “if falling from $97 per share to $8 doesn’t put a company through heck, I don’t know what does.”
Redfin isn’t the only real estate company laying off employees. Real estate firm, Compass, announced on the same day that it is releasing 10% of employees.
“Due to the clear signals of slowing economic growth we've taken a number of measures to safeguard our business and reduce costs, including pausing expansion efforts and the difficult decision to reduce the size of our employee team by approximately 10%,” a Compass spokesperson said in an email to The Center Square.
As fewer people go to the housing market, real estate firms such as Redfin and Compass will continue to shrink in size. How long this cooling will last is, at present, unknown.
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