Redfin and Compass to Lay off Hundreds as Housing Market Cools


Two of the most prominent names in realty fell prey to layoffs on Tuesday. First, Redfin announced that it would be laying off 8% of its staffCompass is one of the largest residential brokerages in the country and announced that It would reduce 10% of its workforce.

Redfin stated that today’s layoff was caused by Redfin’s revenue shortfalls and not the people being laid off. Compass also blamed the slowdown in housing for its 450 layoffs. “With May’s 17% lower expectations, we don’t have enough work to support our agents and support personnel,” Redfin said in a statement about the 470 job cuts.

In April, The U.S. housing market went into slowdown mode. As data for May and June are available, we see that this isn’t a mild slowdown but an abrupt shift. Mark Zandi, the chief economist at Moody’s Analytics, that we’ve gone through a housing boom to a full-blown “housing correction” and will soon notice a drop in the year-over-year home price growth from a record 20.6% down to 0%. Moody’s Analytics predicts a nationwide decline in home prices of 5%, with a 15% to 20% drop for America’s most overvalued regional housing markets. Zandi does not expect a 2008-style housing bust, but he closely watches the situation.

What drove the housing market to the top? It was a combination of skyrocketing home prices that have been detached from the underlying economic fundamentals. Buyer demand is declining–fast. In addition, soaring mortgage rates have finally caused homebuyers to push back.

The Federal Reserve worked hard to curb the inflationary boom that occurred in the 1970s. The average 30-year mortgage rate jumped from 3.1% to 6.2% in the last six months as the Federal Reserve switched into an inflation-fighting mode. The mortgage rates are at their highest point since 2008. This 3.18 percentage point increase marks the largest upward swing in mortgage rates ever since 2008. It also kept the highest mortgage rates since 1981, a year when the average fixed rate for 30 years was above 18%.

Rising mortgage rates can cause some borrowers to lose eligibility for mortgages. They must meet strict lender debt-to-income ratios. Others will have to pay more.

A borrower would owe $2135 monthly if they took out a $500,000 mortgage at the average fixed rate of 3.1% in June 2021. This principle and interest payment would be $3,088 at a rate of 6.28%. However, this assumes flat home price growth. Let’s take that the house experienced a price increase of 20%. This is the most recent year-over-year reading on home price growth. This would increase the mortgage to $603,000. A $603,000 mortgage with a fixed rate of 6.25% comes with a monthly payment of $3,725. A 74% increase in the cost of a mortgage is to go from $2,135 and $3,725.

This hypothetical is not too far from the truth. Zonda’s chief economist Ali Wolf provided mortgage calculations for America’s 100 largest regional housing markets. What is the result? The average new mortgage payment has risen 52% in the last six months. It’s higher than 60% in some markets like Tampa, N.C., and Raleigh, N.C.

The slowdown in activity is due to rising mortgage rates and homebuyers being locked out. Redfin, Compass will be laid off.

These layoffs are not an exception.

The financial chaos is spreading beyond mortgage companies. A few weeks ago, mortgage lenders began slashing their headcounts because higher mortgage rates caused a major blow to mortgage refinances ( down 75% over the year) and purchase applications ( down 20% over the year). This also led to a dramatic slowdown in purchasing applications.

Zillow may also be feeling the pinch if the stock market is any indication. Redfin and Compass shares have fallen 38% and 51% over the past three months. Zillow fell 33% in the same period.

Redfin and Zillow lost all their stock gains from the housing boom’s pandemic. Redfin shares have fallen 74%, while Zillow shares have fallen 43% over the past 24 months. Compass shares have fallen 79% since its April 2021 initial public offering.

What can we expect in the future? The cooling process will intensify as home buyers continue to pull back. We should see the U.S. housing sector experience its “most significant contraction since 2006” in the next months, tweeted Len Kiefer, the deputy chief economist at Freddie Mac.

Logan Mohtashami (lead analyst at HousingWire) says that a housing bust is not imminent.

According to the National Association of Realtors, U.S. The housing inventory rose to 1.03million in May, according to the National Association of Realtors. We need a list to increase from 1.52 million to 1.93million housing units to achieve a normal housing market. Mohtashami believes that the U.S. home price could begin to fall yearly once it reaches more than 2 million units. They will eventually fail, he says, because they were too high this spring.

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