Real estate firms Redfin and Compass are laying off workers, as mortgage rates rise sharply and home sales drop.
In filings with the Securities and Exchange Commission, Compass announced a 10% cut to its workforce, and Redfin announced an 8% cut.
Shares of both companies fell Tuesday. Redfin’s stock touched a new 52-week low.
Rising rates and overheated home prices, which are now up over 20% from a year ago according to various surveys, have crushed affordability. Home sales have been dropping for several straight months, and the fall is expected to worsen.
Mortgage demand has fallen to its lowest level in over two decades. Rates have taken off since the start of this year, rising from 3.29% in early January to 6.38% now, according to Mortgage News Daily. Rates shot up more than half a percentage point in just the past three days, as concerns over inflation hit the bond market.
“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.
The Redfin filing had an attachment from CEO Glenn Kelman, who writes a regular blog on the company’s website. In the blog posted Tuesday, Kelman wrote, “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.”
Kelman went on to say that with mortgage rates increasing faster than at any point in history,
“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.”