Recent housing market layoffs have rekindled fears of a real estate recession. What do recent staff cuts from the likes of Compass (NYSE:COMP) and Anywhere Real Estate (NYSE:HOUS) mean for housing going forward?
Well, this morning New Jersey-based real estate brokerage, Anywhere Real Estate, announced it made a “meaningful” reduction to its workforce on Monday. Indeed, in today’s filing the company revealed it has cut 11% of its workforce since June 30, including this week’s layoffs.
In a statement, the company claims the layoffs were a product of “worsening trends” in housing, namely, increased digital presence:
“We believe that industry dynamics and customer demands will require simplified and more integrated and digitized offerings, systems and support… Delivering the company’s business model more digitally is an increasing part of our improving the consumer experience and our ongoing cost focus.”
Anywhere isn’t alone, however. A number of real estate companies have been forced to downsize due to the housing slowdown, with some big names reporting massive layoffs.
This includes New York-based brokerage, Compass, which recently announced its third round of layoffs in just the past 12 months. On Jan. 6, Compass reported it was currently pursuing a tenant to sublease its 89,000-square-foot office space at 90 Fifth Avenue near Union Square, as well as assessing its final wave of staffing cuts.
According to a Securities and Exchange Commission (SEC) filing, the company projects its expense reductions will allow it to be cash-flow positive in the new year:
“The company believes its actions allow for a path to achieve positive free cash flow in 2023 accounting for market scenarios that are worse than Fannie Mae’s negative 22.6% estimate for residential real estate transaction volume (price and units) in 2023.”
What do these housing layoffs mean for the real estate industry in 2023?
Housing Market Layoffs Add Fuel to Real Estate Fire
It’s no secret housing has been in something of a contractionary phase for most of the past year. Home prices have stagnated, with regions across the country experiencing notable pullbacks in home values. This, of course, comes as a consequence of the Federal Reserve’s monetary tightening.
The central bank hiked interest rates seven times over the course of last year, pushing mortgage rates up in the process. Indeed, from 2% at the start of 2022, currently, 30-year fixed-rate mortgages are trending around 6.5%. As a result, demand for homes has sunk dramatically since the real estate boom in 2021. Indeed, home builders have reported experiencing a notable decline in orders as high lending rates price out many would-be homebuyers. Indeed, in November 2022, total existing-home sales fell 35% from the same time last year.
As demand wanes, it’s only natural to see layoffs in the industry. Real estate has long been considered the most rate-sensitive business. As rates rise, home demand wanes, and real estate companies are forced to cut jobs in order to meet revenue and profit projections. In that regard, real estate has closely mirrored the tech industry, which has also seen its fair share of Fed-induced layoffs this past holiday season.
With more rate hikes likely on the way, the real estate slump may not have reached its trough. Mounting fears over inflation, recession, geopolitical uncertainty, and more, means housing will continue to operate in flux for the foreseeable future. Whether that results in a housing market crash many economists have prognosticated, remains to be seen.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.