What Real Estate Layoffs Tell Us About The Housing Market

Earlier this week, two of the nation's biggest names in real estate announced significant layoffs, saying the drastic move was due to the housing slowdown that the country is currently experiencing.

Seattle-based Redfin has announced it's laying off eight percent of its staff, around 470 people, while residential brokerage company Compass, one of the largest in the country, is letting go 10 percent of its staff, or about 450 people.

Both companies said the layoffs should not reflect at all on the employees, but it was simply the only solution to the fact that there was not enough work for these employees.

"Today's layoff is the result of shortfalls in Redfin's revenues, not in the people being let go...with May demand 17 percent below expectations, we don't have enough work for our agents and support staff," said Redfin in a statement.

Housing market USA
The housing market has entered a slowdown, data show. In this photo, construction workers work on a new home in Laurel, Maryland, on June 4, 2022. STEFANI REYNOLDS/AFP via Getty Images

The price of Redfin's shared dropped from about $39 at the beginning of the year to $8.55 this week.

That the biggest real estate companies in the U.S. are letting their employees go and complaining of a plunge in demand for their services is a telltale sign of the state of the American housing market.

The market has reported a slowdown since April, which has persisted in May and June. Buyers' demand has fallen amid record-high home prices—34 percent higher now than two years ago—and soaring mortgage rates.

"Throughout the past year, all statistics related to the American housing market have hit some sort of insane record: house prices have reached an all-time high, the number of properties sold above the asking price is astronomical, meaning that the number of property sales reached a record breaking low," property expert Bruna Pani told Newsweek.

Mortgage rates are at their highest levels since 2008, after the average 30-year mortgage rate rose from 3.1 percent to 6.28 percent on Tuesday. Now a higher cost of borrowing after the Federal Reserve has increased its key interest rate for the first time since 1994 is likely to worsen the market condition for potential home buyers and borrowers, slowing spending, though mortgage rates have temporarily dropped since the Fed's announcement on Wednesday.

Meanwhile, home prices are still rising.

The housing market's slowdown is a bit of a surprise after the intense buyer competition the industry experienced since 2020, as people looked to buy their first home or a larger one during the pandemic and borrowing costs neared zero.

But rising costs led by soaring inflation has now profoundly changed housing market conditions, and that pandemic-era hot demand has now cool down.

Though home affordability isn't expected to change any time soon, experts predict that the rise in home prices must change course at some point.

Existing home sales dropped by 2.4 percent in April, to the lowest level in nearly two years. It was the third straight monthly sales decline.

"The decline in property sales, in addition to the obvious slowing of economic growth, has resulted in a sense of panic from property businesses who are now trying to gatekeep the inevitable increase in inflation throughout this housing downturn," said Pani.

"The astonishing statistic that Redfin's sales have dropped over 80 percent in the past six months is a testament to the panic that exists around the U.S. housing market."

A poll produced by Reuters and published at the end of May found that house price inflation will cool to 10 percent—half its current rate—over the next two years, as prospective buyers are discouraged by rising mortgage rates and high home prices.