Real estate companies don’t actually lay off staff right and left

Here was the headline The street‘s report on the Compass and Redfin layoffs last week: “Real estate companies are cutting staff on the right and left.”

Counterpoint: No, they are not.

here was news week‘s: “What Real Estate Layoffs Tell Us About the Housing Market.”

Answer: nothing.

And here was the caption from my friends at Inman: “Do layoffs at Compass and Redfin signal a looming real estate purge?”

Answer: No.

Here’s the reality. The companies that have laid off employees are either investor-driven companies that are losing money and stock prices, startups with unproven business models, or refi-dependent mortgage and title companies. They all attract tremendous attention from those in the know, but they are totally unrepresentative of the industry as a whole.

Worse, their layoffs were based on problems with their intrinsic business models, but coverage of the layoffs suggested they were the result of changes in the housing market and economy – leading to a misleading narrative that a declining housing market was far off Layoffs will be widespread across the industry.

So why am I saying these companies are not representative of the larger industry? Let’s see List helpfully compiled by Inman Identify 18 companies that recently laid off employees and break them down into my three categories:

1. Stockbroker losing money and stock prices plummeting

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

Indeed, this was their exact address to the investors who have given in to them over the past decade: “We are not real estate agents, we are technology companies!” This camouflage worked for a long time, even during Compass lost $500 million and Redfin $110 million in 2021 the best market in the history of housing construction.

But if you live as a tech company, you die as a tech company. With the DOW down 14 percent, the NASDAQ down over 25 percent, and investors perhaps rediscovering that earnings are kind of fun, the “tech company’s” branding is a bit battered right now: Compass’s share price is down over 70 percent has fallen, and Redfin’s has fallen over 85 percent over the past year. I would expect that to put a lot of pressure on them.

Please note that I am not trying to smack my peers in the brokerage business. I’ve worked in a brokerage firm for 20 years; it’s never easy. And Compass and Redfin are both extraordinary companies run by smart people who will get them through it.

But I think it’s unfair that both companies blame the economy or the housing market for the layoffs. They didn’t fire people because of the housing market; They fired people because of the stock market.

2. Unproven startups

Six of the other companies that recently laid off employees are startups with business models that haven’t yet proven their ability to actually make money:

Again, the narrative that their layoffs signal something about the larger industry is misleading. These companies are not representative of the vast majority of brokers. Two of them are discount brokerage firms that are uniquely and extraordinarily sensitive to any slowdown in a seller’s market because their bidding becomes much tougher if houses don’t sell above asking price within three days.

The others are interesting companies trying to provide a useful service to consumers or industry, but they’ve been expanding aggressively during a hot market, so they’re also particularly sensitive to changes in the living environment. But it’s not the market — startups expand and contract all the time, and they’re totally unrepresentative of most real estate companies, which are more stable (and dull).

Again, I’m not criticizing these companies. In fact, having worked with startups, I know how challenging it can be to build a great company from scratch. But it’s a 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 they are firing people, the story suddenly becomes a problem with the market.

3. Refi dependent lenders and title companies

Finally, the bottom 10 of the 18 brokerage firms to recently lay off people are mortgage and/or title companies, many of them startups: Better, mixture, Dona, Guaranteed price, basement mortgage, loan deposit, Mr Cooper, pennymac, rocket mortgageand Wells Fargo.

But again, mortgage and title companies aren’t laying people off for the housing market. They’re laying people off because mortgage rates have skyrocketed.

All mortgage and title companies benefited immensely from the rapid refi business in recent yearsbut some of the companies that laid off employees were particularly dependent on Refis because they lacked lead pipelines for real estate agent and agent purchase deals. But Refis are obviously dead this year because Anyone who has wanted to refinance has probably done so in the last few years.

These 10 mortgage and title companies aren’t alone. I expect more mortgage and title companies are likely to be downsizing this year because they simply won’t have the transaction load they used to have when Refis were gone. Yes, rising interest rates will of course affect real estate agents too, but businesses (like estate agents) that rely more on buying and selling will be in much better shape than those that have historically relied on Refis.

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 get annoyed that some of these companies are trying to justify their layoffs by inventing the narrative that it’s the fault of the market and not a problem with their business model or business plan.

Do you have to lay off employees? own it Don’t bring the whole market down with you.

Just to be clear, I’m not saying these are the only companies laying off employees this year. Other companies will follow. All I’m saying is that we shouldn’t read too much about layoffs at public companies that are particularly sensitive to Wall Street sentiment, unproven startups that are uniquely sensitive to fluctuations in the real estate market, or mortgage and condominium companies that are uniquely react sensitively to the decline of the refi business.

Yes, the housing market is cooling, but just like a pie cools fresh out of the oven – “chill” is not the same as “cold”. There used to be five buyers for every seller. Now there are two or three buyers for every seller. We still don’t have enough offers, and many of these buyers are simply getting 7-year adjustments instead of 30-year fixed rates to keep their mortgages. I still think there’s a lot of meat on that bone.

No, we will not reach the record years 2020 and 2021. But the volume of homes sold in 2022 will likely be higher than 2019 or 2018 or 2017 or probably any other year since the Big Bang. This is a pretty good year!

So let’s stop blaming the market for our troubles and get back to work.

Joe Rand is Executive Director of Broker Public Portal, Chief Creative Officer by Howard Hanna | Rand Realty in New York, New Jersey and Connecticut and author of Disruptors, discounters & doubters and How to become a great real estate agent.

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