"When House Prices Rose, It Was Good" US Housing Market Slump Leads to Consecutive Layoffs at Brokerage Firms

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Hyunjung] Bloomberg reported on the 14th (local time) that local real estate companies in the United States have been laying off employees one after another as housing transactions slowed down due to the rapid rise in interest rates.

According to the report, U.S. real estate brokerage firms such as Compass and Redfin are reducing their workforce as the housing market, which surged in price during the pandemic, cools down due to interest rate hikes. According to Mortgage News Daily, the mortgage interest rate, which was 3.29% in early January this year, has now risen to 6.38%.

Compass announced through a Securities and Exchange Commission filing that it will lay off about 10% of its total workforce. Redfin also announced plans to reduce its workforce by 6%.

Compass plans to cut about 450 employees accordingly, estimating related costs before taxes in the second quarter to be around $21.5 million to $23 million. Redfin will also reduce about 470 employees, with severance and other costs expected to total $9.5 million to $10.5 million.

[Image source=AP Yonhap News]

The Federal Reserve's interest rate hikes aimed at curbing inflation have raised mortgage interest rates, and the housing market is rapidly cooling. Glen Kelman, CEO of Redfin, explained that housing demand in May fell 17% below the company's expectations.

CEO Kelman said, "We have saved hundreds of millions of dollars to avoid workforce restructuring amid months of uncertainty. However, mortgage interest rates have soared faster than at any time in history, and we may face a situation where home sales shrink not for months but for years."

Mike Delfreet, a researcher at the University of Colorado Boulder, said, "Compass's layoff of 10% of its employees seems to be a minimal response to market conditions, but it has not solved fundamental problems such as the business model and high liquidity burn."

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