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Redfin expects home sales to keep falling through 2023, leaving housing companies to negotiate a "jungle" of uncertainty longer than once anticipated.
The real-estate company laid off 862 staffers, or 13% of its workforce, on Wednesday against the backdrop of a deteriorating US housing market.
The decline has been triggered by high inflation and rising interest rates, which have lifted borrowing costs. That's put pressure on homebuyer demand and home prices, which have both taken a hit this year.
The layoffs assume there will be a housing downturn that will last at least through 2023, the company's CEO, Glenn Kelman, told employees in a memo announcing the decision.
That means "housing companies are in the jungle now, but Redfin has been there before and come out stronger," Kelman said in separate press release.
"Home prices will at some point stabilize, but the cost of capital isn't going back to 2021 levels anytime soon," Kelman added.
Kelman said during the company's earnings call that he expects the volume of home transactions in 2023 to be about 30% less than in 2021, when mortgage rates reached record lows and strong demand sent home prices through the roof.
That would mean the number of existing home sales would drop from roughly 6.1 million in 2021 to roughly 4.3 million in the coming year. Transaction volume for this year was on pace to reach 4.7 million units as of September, according to the National Association of Realtors.
Interest-rate hikes by the Federal Reserve have helped push the average rate for a 30-year mortgage to roughly 7%, well more than double the rate from a year ago, according to Freddie Mac. That's made it much more expensive for Americans to afford monthly payments on a house.
According to a Fannie Mae survey, just 16% of Americans believe now is a good time to buy a home, suggesting depressed homebuyer confidence.
In a surprise move, Redfin also said it will be shutting down its home-flipping business, RedfinNow, which is expected to lose as much as $26 million this year, not including its overhead expenses.
The sudden slowdown in the housing market left Redfin with hundreds of millions of dollars in "houses that you yourself wouldn't want to own right now," Kelman said in the memo.
Redfin already felt the pain of a slumping housing market in June, when it saw homebuyer demand drop 17% year-over-year, and cut more than 470 employees in response.
"The June layoff was a response to our expectation that we'd sell fewer houses in 2022; this layoff assumes the downturn will last at least through 2023," Kelman said in the memo.
Against that backdrop, Redfin posted a quarterly loss of $90.2 million, compared to a net loss of $18.9 million in the third quarter of 2021. The company's stock was trading at
At last check Thursday, Redfin shares were trading at $4.58 per share, up about 40% from Wednesday's close.
