With rising interest rates, there are growing concerns that the current housing market downturn may last through 2023, and a residential real estate brokerage is getting ahead of the curve by laying off 13% of its staff.
What happened: Shares of Redfin Corp (NASDAQ:RDFN) slipped 11.42% Wednesday after the company announced it would lay off 862 staff members, including 264 who belonged to the company’s home-flipping business, RedfinNow, which Redfin announced would dissolve in an SEC filing.
The company lost more than 470 employees as a result of the second quarter's 17% year-over-year decline in demand for home purchases, which was already making the housing downturn painful for the company.
Its deficit for the June quarter nearly tripled to $78.1 million from the same quarter a year earlier, with more losses anticipated.
The company reports earnings on Wednesday after market close.
Glenn Kelman, CEO of Redfin, stated that the 862 layoffs are predicated on the housing downturn continuing at least through 2023.
Why it matters: The Fed has raised rates six times this year as it attempts to contain inflation that has reached four-decade highs, contributing in part to the average long-term mortgage rate in the U.S. now being around 7%.
Read also: The Fed Is Crushing The Housing Market, Not Inflation
At their last four meetings, Fed officials increased their benchmark lending rate by 75-basis points, igniting concerns that their aggressive approach to policy may push the country into a recession.
Although more rate increases are anticipated throughout next year, the Labor Department’s Consumer Price Index report on Thursday may influence the Fed's course of action.
The Fed's efforts have cooled a once-hot housing market, even though the government just calculated that the overall U.S. economy returned to growth last quarter.
As would-be first-time homeowners withdraw from the market due to high borrowing prices and inflation already eating away at their salaries, home sales have dropped for eight months in a row.
In order to avoid locking in a higher rate on their next mortgage, many homeowners are upgrading their existing houses and waiting for the interest rate to pivot.
Read next: Is There Going To Be A Housing Market Crash In 2023?
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