Real estate firms Redfin and Compass both announced significant layoffs Tuesday as high mortgage rates begin to strangle the market and temper demand.
Redfin announced an 8% cut to its workforce. Compass is reducing its staff by about 10%.
It’s another indicator that the U.S. housing market is taking a turn — and yet, prices remain sky high.
“To all the departing people who put your faith in Redfin, I’m sorry we can’t keep our commitment to you,” Glenn Kelman, Redfin’s CEO, wrote in a message to employees Tuesday and posted to Redfin’s blog. “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.”
The Redfin layoffs amount to about 470 jobs. At Compass, it totals about 450, according to a regulatory filing, which also noted Compass is winding down Modus Technologies, a title and escrow software company.
Redfin stock dropped almost 5% as of late Tuesday afternoon, down almost 80% year to date. Compass sank over 10%, bringing it more than 68% down over the past year since it peaked in August of 2021.
As the Federal Reserve aims to tame record inflation, it’s expected to raise rates again on Wednesday, possibly by 0.75%, CBS News reported. That would follow a 0.25% hike in March and a 0.5% hike in May, which was the sharpest increase since 2000.
As of Tuesday, mortgage rates were floating near the 6% range, with an average of 5.87% for a 30-year-fixed mortgage, according to Bankrate.com.
What they’re saying: Kelman said managers would spend several hours calling people that will be leaving the company. He also said Redfin hosted a brief “all-hands” meeting to answer questions.
“I said we wouldn’t lay people off unless we had to,” Kelman wrote. “We have to.”
Kelman said 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.”
But mortgage rates “increased faster than at any point in history,” he wrote. “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.”
Compass said its decision was based on economic conditions.
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, according to CNBC.
Redfin severance details: Kelman said Redfin is offering laid-off employees 10 weeks of base salary, with an additional week of pay for every 12 months of service beyond one year, capped at 15 weeks of pay. For agent and support roles, severance pay will include the estimated value of productivity bonuses or sale bonuses.
“This should give you until the end of the summer to find work,” he said.
What now? In his message, Kelman also said it’s “time to make money.”
“We’re losing many good people today, but in order for the rest to want to stay, we have to increase Redfin’s value. And to increase our value, we have to make money,” Kelman said. “We owe it to everyone who has invested your time or treasure in this company to become profitable, and then very profitable.”
Kelman’s message also sought to answer the question “where do we go from here,” as the housing market enters what Freddie Mac’s deputy chief economist called “the most significant contraction in activity since 2006.”
“Redfin will grow more slowly in a housing downturn, but we’ll still grow, and our share gains will accelerate,” Kelman said.
“The world will write us off, as it has before. What will be most painful is the effort some of you will have to go through to think of ourselves as a good employer. Part of being good is accepting when the company has fallen short of that, without forsaking our determination to do better.
It hasn’t been long at all since Redfin last announced layoffs. In 2020, Redfin cut 7% of its staff and furloughed hundreds of agents at the onset of the COVID-19 pandemic.
“We have broken our commitment to our people, twice now in three years,” Kelman said. “We can’t shrink from doing what’s best for the whole company, not just one part of it, today and every day. But I’ll spend the rest of my life wondering how I could’ve avoided these layoffs.”