Here was the address in streetReport on layoffs at Compass and Redvin last week: Real estate companies are laying off employees left and right.
Interviewer: No, they are not.
was here NEWSWEEK‘s: “What real estate layoffs tell us about the housing market.”
And here was the headline from my friends in Inman: “Do Compass and Redfin layoffs indicate an imminent real estate purge?”
Here’s the truth. The companies that laid off people are either investor-led companies that are losing money and stock prices, start-ups with unproven business models, or mortgage and equity firms that rely on refinancing. They all attract a huge amount of interest from cognoscenti, but they don’t fully represent the industry as a whole.
Worse, their layoffs were based on problems with their core business models, but coverage of the layoffs suggests they were the result of changes in the housing market and the economy – fueling the misleading narrative that the property market downturn will spur broadly. layoffs across the industry.
So why would I say that these companies do not represent the larger industry? Well, let’s take a look at this A list usefully compiled by Inman Identify 18 companies that have recently laid off employees, and divide them into three categories:
1. Loss-making public brokerages as stock prices crash
Two of the 18, of course, are compass And the Redfin, which announced the layoffs of 8-10 percent of employees last week. But neither company represents the larger brokerage community.
In fact, this has been their exact offering to investors that I’ve enjoyed over the past decade: “We are not real estate brokers, we are tech companies!” This camouflage worked for a long time, even during that Compass lost $500 million And the Redfin 110 million dollars 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, the Nasdaq down more than 25 percent, and investors probably rediscovering earnings are kind of fun, the ‘tech company’ brand is tarnished a bit right now: Compass’s share price is down more than From 70 per cent, Redfin’s price has fallen more than 85 per cent in the past year. I expect that to put a lot of pressure on them.
Now, please note that I am not trying to crush my fellow brokers. I have worked in a brokerage for 20 years. It is never easy. Both Compass and Redfin are exceptional companies run by smart people who will go above and beyond.
But I think it’s unfair for both companies to blame the layoffs for the state of the economy or the housing market. They did not lay off people because of the housing market; They laid off people because of the stock market.
2. Unproven Startups
Six of the other companies that have recently laid off employees are startups with business models that have yet to prove that they can actually make money:
Again, though, the narrative that they were laid off indicating something about the larger industry is misleading. These companies do not represent the vast majority of brokerages. Two of them are discount brokers that are uniquely and wonderfully sensitive to any slowdown in the sellers market because their bid becomes tougher when homes don’t sell in three days above asking price.
Others are interesting companies trying to provide a useful service to consumers or the industry, but have expanded aggressively during a hot market, so they are also particularly sensitive to any change in the housing environment. But it’s not the market – startups are always scaling and contracting, and they’re not exactly representative of most real estate companies, which are more stable (and boring).
Again, I am not criticizing these companies. In fact, I’ve worked with startups, and I know how hard it is to build a great company from scratch. But it’s a little funny that when the media reports that disruptive startups are expanding and hiring, the narrative is about how smart and disruptive their business model is; But when the media reported that they are firing people, the story suddenly is problems with the market.
3. Accredited Lenders and Title Firms
Finally, the last 10 of the 18 brokerages that have laid off people lately are mortgage and/or equity firms, many of which are start-ups: betterAnd the mixesAnd the Without aAnd the Guaranteed rateAnd the Mortgage KeelerAnd the loan warehouseAnd the Mr. CooperAnd the benemacAnd the missile mortgageAnd the Wells Fargo.
Again, though, mortgage and title companies aren’t laying off people because of the housing market. They are laying off people because of the high mortgage rates.
All mortgage and property companies have benefited greatly from The resale business has risen in the past few yearsbut some of the companies that laid off people were particularly reliant on the reference because they lacked the main pipelines to buy business from real estate brokers and agents. But it is clear that the reference died this year Because Anyone who was about to refinance has probably done so in the past few years.
These ten mortgage and equity firms are not alone. I expect that more mortgage and title companies will likely cut their staff this year because they simply won’t have the transaction load they used to carry with the reference gone. Yes, obviously higher prices will also affect real estate brokerages, but companies (such as real estate brokers) that rely more on buying and selling business will be in a much better position than those that have historically relied on reference.
So what is my point? I don’t think the 18 companies that Inman identified represent the health of the industry. And I resent some of these companies trying to make excuses for layoffs by making a narrative that this is the fault of the market, not a problem with their business models or business plans.
Need to lay off people? own it. Don’t drop the whole market with you.
Just to be clear, I’m not saying these are the only companies that will lay off employees this year. Other companies will follow. I’m just saying that we shouldn’t read too much about layoffs at public companies that are uniquely affected by Wall Street sentiment, or unproven startups that are uniquely affected by any fluctuations in the housing market, or mortgage and equity firms uniquely affected by the demise of businesses. Rehabilitation. .
Yes, the housing market cools, but in the same way that a pie fresh from the oven cools – “cooling” is not the same as “cooling”. We used to have five buyers per seller. Now, we have two or three buyers for each seller. We still don’t have enough listings, and many of these buyers are simply getting 7-year adjustable rather than 30-year fixed rates for their mortgages. I still think there is a lot of meat on these bones.
No, we won’t match the record years in 2020 and 2021. But the volume of properties sold in 2022 will likely be higher than it was in 2019, 2018, 2017, or perhaps any other year going back to the big one. lively. This is a very good year!
So let’s stop blaming the market for any problems we’re having, and get back to work.
Joe Rand is CEO of Public Broker Portal, and Chief Creative Officer of Howard Hanna | Rand Realty in New York, New Jersey and Connecticut, and author Unemployed, discounts and doubters And the How to be a great real estate agent.