Redfin, Compass and other real estate companies in June amid high US interest rates and slowing home sales Dismissed hundreds of agents.
Employment cuts expect brokerage firms to put an end to record low mortgage rates, bid wars and high prices after the pandemic, as the U.S. housing market has just begun to cool. May indicate.
Experts say it may be wise to watch out for unemployment and market upturns, but the conditions set by the authorities are unlikely to affect buyers and sellers immediately or dramatically.
Eric Sasman, vice professor of accounting and managing partner at UCLA Anderson School of Management at Clear Capital Inc., a California-based real estate investment firm, said:
This is not a shock, given that the average mortgage rate for 30 years has almost doubled. From 3.1% at the beginning of the year to 5.81% as of June 22The highest rate since 2008.
Increased borrowing costs have reduced demand from buyers. From April to May, existing home sales fell 3.4% and transactions fell 8.6% from May 2021.
The decrease in that amount was a blow to securities companies. At Seattle-based Redfin, demand in May was 17% lower than expected.
“There isn’t enough work for agents and support staff, and low sales mean less funding for the headquarters project,” CEO Glenn Kelman said in a statement to employees. Redfin company blog In June.
Compass and Redfin management may be acting cautiously before the market slows further, Sasman said. Redfin has announced that it will reduce its workforce by 8%, or about 470. Meanwhile, Compass has reduced its workforce by 450, or about 10% of its staff.
“You are staffing the company to fit the market, but then the market shrinks, so the company [staffing] We need to shrink accordingly, “Mariam Sughayer, Vice President of Communications at Redfin, told Mansion Global.
“Housing is very responsive to recession,” Sughayer added. “That’s the nature of real estate in general. We have a lot to do with what’s happening in the economy and the way consumers think.”
Redfin’s CEO predicts that the recession could be prolonged. In a memo to employees, he said the company was preparing for “a decline in home sales for years, not months.”
A compass spokesman said, “Because of the clear signs of slowing economic growth, we recently took steps to protect our business.”
“Our goal is to be the best company in the world by empowering agents, and these recent steps allow us to stay focused on that approach,” said a spokesman. Told.
Staff reductions aren’t limited to Redfin and Compass. May, The brokerage firm REX Real Estate has closed two offices in Texas.And Doma, Digital Titles, Escrow and Closing Providers, Dismissed about 15% of employees That same month.
The hot housing market, which has been expanding since the beginning of the pandemic, has also boosted the number of US realtors to record highs. According to the National Association of Real Estate Agents.. From 2021 to 2020, more than 156,000 people became real estate agents. This is about 60% more than in the last two years.
“In a bull market, it’s generally just bloated,” Sasman said. “In the real estate business, it’s pretty easy to add a broker. It provides a little overhead and basic training, so to speak, letting them go out and eat what they killed.”
Founded in New York in 2012, Compass expanded rapidly in 2018, hiring more than 7,000 agents nationwide after a $ 450 million investment from Softbank. As of 2022, there were 100 offices nationwide.
Like Compass, Redfin continued to hire, nearly doubling the number of rostering agents from 1,399 in the second quarter of 2020 to 2,750 in the first quarter of 2022.
Currently, the same brokerage firm, which added agents while the market was expanding, is beginning to “prun the hedges” as sales volume declines, Sasman said.
Timothy H. Savage, a clinical assistant professor at the NYU Schack Institute of Real Estate, said: “They expanded too rapidly for current market conditions.”
Daniel Quan, a real estate professor at SC Johnson Business College at Cornell University, said these brokerage firms are sensitive to fluctuations in demand.
“Their profitability is highly dependent on quantity,” he said.
More subtle pictures for buyers and sellers
Still, bad news for real estate companies may not be bad news for sellers, and experts warn against drawing too many conclusions about the future of the housing market based on these layoffs.
“Frankly, I don’t really guess from either of these,” Savage said.
House prices haven’t fallen, although sales have fallen.
Median home prices nationwide exceeded $ 450,000 for the first time in June, despite home sales slowing for the fourth straight month. Realtor.com.. The property spent an average of 32 days on the market.
“It’s not as bad as it looks,” Kuan said. “Although sales volume has declined due to rising mortgage rates, prices are still rising.”
Experts are divided on whether prices will go down.
“There is no doubt that prices will go down,” Sasman said. “The cost of buying a home can’t be so high and it can’t affect the price.”
He added that buyers should expect home rebalancing, not accidents.
“Prices will fall and ease,” Sasman said. “We do not expect a significant base decline due to the huge shortage of housing to meet market demand over the long term.”
In a report published in June, Research firm Capital Economics Forecast In the US housing market, home price growth is expected to decline by 5% by mid-2023 as a result of rising mortgage rates.
Other reports predict that the housing market will not be so badly hurt. Freddie Mac expects to continue to see slower growth in home prices, But it doesn’t decline. The April 2022 report predicts that single-family home prices will average 10.4% in 2022 and 5% in 2023.
Redfin also predicts that price growth will slow in the short term, but demand will soon recover.
“We believe that long-term demand for housing will continue to grow for at least the next decade,” Sughayer wrote in a follow-up email to Mansion Global. “Millennials are the largest generation and are now becoming the first homebuyers.”
For buyers, declining demand can provide a window of opportunity for those who struggle to blockade real estate during a pandemic.
“The housing market is more balanced in many ways,” Sughayer added. “I’ve heard buyers returning to a market that may have been defeated in five or ten bid wars in 2021, but now they feel hit.”
Despite high interest rates, Sughayer said buyers could be encouraged to know that they might have the opportunity to refinance their assets in the future.
“For many, this may really be their chance,” she said.