Real Estate Companies Are Actually Not Laying Off Staff Right And Left

Here was the headline in The Street‘s report on the Compass and Redfin layoffs last week: “Real Estate Companies Are Laying Off Staff Right And Left.”

Counterpoint: No, they ‘re not.

Here was Newsweek‘s: “What Real Estate Layoffs Tell Us About the Housing Market.”

Answer: Nothing.

And here was the headline from my friends at Inman: “Do Layoffs at Compass and Redfin Signal a Loading Real Estate Purge?”

Answer: No.

Here’s the reality. The companies that are laid off are either investor-driven companies that are losing money and share prices, startups with unproven business models, or refi-dependent mortgage and title companies. They all attract a huge amount of attention from the cognoscenti, but they are wholly unrepresentative of the industry as a whole.

Even worse, their layoffs were based on problems with their intrinsic business models, but the layoffs of coverage suggested they were the result of changes in the housing market and economy – sparking a misleading narrative that a declining real estate market is going to spur widespread. layoffs across the industry.

So why do I say those companies are not representative of the larger industry? Well, let’s look at this list helpfully compiled by Inman Identifying 18 companies that have recently laid off people, and breaking them down into my three categories:

1. Money-losing public brokerages with collapsing stock prices

Two of the 18, of course, are Compass and Redfin, which announced 8-10 percent of staff layoffs last week. But neither company is representative of the larger brokerage community.

Indeed, that has been their precise pitch to the investors who have indulged them over the past decade: “We’re not real estate brokerages, we’re tech companies!” That camouflage worked for a long time, even while Compass lost $ 500 million and Redfin $ 110 million in 2021, the best market in the history of housing.

But if you live as a tech company, you also die as a tech company. With the DOW down 14 percent, NASDAQ down 25 percent, and investors may be rediscovering that profits are kind of fun, that “tech company” branding is a little tarnished right now: Compass’s stock price is down 70 percent, and Redfin’s is down. Over 85 percent in the past year. I would expect that would put a lot of pressure on them.

Now, please note that I’m not trying to bash my colleagues in the brokerage business. I’ve worked at a brokerage for 20 years; it’s never easy. And Compass and Redfin are both extraordinary companies run by clever people who will get past them.

But I do think it’s unfair that both companies blamed the layoffs on the state’s economy or the housing market. They didn’t let people off because of the housing market; They laid people off because of the stock market.

2. Unproven Startups

Six of the other companies that are taking off are recently startingups with business models that have not yet proven their ability to actually make money:

Again, though, the myth that their layoffs signal something about the larger industry is misleading. These companies are not representative of the vast majority of brokerages. Two of them are discount brokerages that are uniquely and exquisitely sensitive to any slowdown in a sellers’ market because their pitch becomes a lot tougher when homes are selling in three days above asking price.

The others are interesting companies that are trying to provide a useful service to consumers or the industry, but they are expanding aggressively during a hot market, so they are also particularly sensitive to any change in the housing environment. But it is not the market – startups are always expanding and contracting, and they are wholly unrepresentative of most real estate companies, which are more stable (and boring).

Again, I’m not criticizing these companies. Indeed, I’ve worked with startups, and I know how challenging it can be to build a great company from scratch. But it’s a little bit funny that when the media reports that disruptive startups are expanding and hiring, the narrative is about how clever and disruptive their business model is; But when the media reports that they’re firing people, the story is suddenly problems with the market.

3. Refi-reliant lenders and title companies

Finally, the last 10 of the 18 brokerages that laid people off are recently mortgage and / or title companies, many of them startups: Better, Blend, Dona, Guaranteed Rate, Keller Mortgage, Loan Depot, Mr. Cooper, Pennymac, Rocket Mortgageand Wells FargoGeneral Chat Chat Lounge

Again, though, mortgage and title companies are not bringing people off because of the housing market. They’re laying off people because mortgage rates have spiked.

All mortgage and title companies benefitted immensely from the Soaring refi business of the past few yearsBut some of the companies that laid off were especially reliant on refinance because they lacked lead pipelines for the purchase business from real estate brokerages and agents. But the refs are obviously dead this year because Anyone who was going to refinance probably did it in the past few years.

These 10 mortgage and title companies are not alone. I expect that more mortgage and title companies are probably going to cut staff this year because they simply won’t have the transactional load they have used to refinance. Yes, rising rates are obviously also going to affect real estate brokerages as well, but companies (like real estate brokerages) that depend on more buy-and-sell business are going to be in much better shape than those that are historically relied on to refinance. General Chat Chat Lounge

So what’s my point? I just don’t think the 18 companies identified by Inman are representative of the health of the industry. And I resent some of these companies trying to make excuses for their layoffs by crafting a narrative that it is the market’s fault, rather than a problem with their business models or business plans.

You need to lay people off? Own it. Don’t bring the whole market down with you.

Just to be clear, I’m not saying that these are the only companies that will put people off this year. Other companies will follow. I’m just saying that we shouldn’t read too much into layoffs at public companies uniquely sensitive to Wall Street sentiment, unproven startups uniquely sensitive to any fluctuations in the housing market, or mortgage and title companies uniquely sensitive to the demise of the refi business. General Chat Chat Lounge

Yes, the housing market is cooling, but in the same way that a pie is fresh out of the oven is cooling – “cooling” is not the same as “cold.” We have used five buyers for every seller. Now, we have two or three buyers for every seller. We still don’t have enough listings, and many of those buyers are simply getting 7-year adjustables instead of 30-year fixed-rates to get their mortgages. I still think there’s a lot of meat on this bone.

No, we’re not going to match the record-setting years in 2020 and 2021. But the volume of real estate sold in 2022 will probably be higher than in 2019, or 2018, or 2017, or maybe any other year going back to the Big. Bang. That ‘sa pretty good year!

So let’s stop blaming the market for whatever problems we have, and get back to work.

Joe Rand is the Executive Director of the Broker Public Portal, the Chief Creative Officer of Howard Hanna | Rand Realty in New York, New Jersey, and Connecticut, and the author Disruptors, Discounters & Doubters and How to be a Great Real Estate AgentGeneral Chat Chat Lounge

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