Online real estate brokerage Redfin is cutting 862 employees and closing its instant-cash-offers subsidiary RedfinNow, the latest casualty of the highest interest rates in two decades fueled by the Federal Reserve's inflation-fighting measures.
Redfin said in a regulatory filing that the cuts represent 13% of its workforce. The company also laid off 470 employees in June, citing weak home sales.
Redfin said in the filing that it has cut more than a quarter of its workforce since April 2022, assuming the housing market downturn will continue “through at least 2023.”
The average interest rate on a long-term mortgage in the U.S. has been hovering around 7% since the Federal Reserve raised interest rates six times this year in an effort to halt the highest inflation in 40 years. Fed officials have raised the benchmark lending rate by a quarter of a percentage point at each of their past four meetings, raising concerns that their aggressive policies could push the U.S. into recession.
Further rate hikes are expected next year, but inflation data due from the government on Thursday could influence the Fed's strategy.
The government recently estimated that the overall U.S. economy returned to growth last quarter, but the Fed's actions have cooled the once-booming housing market.
Home sales have slowed for eight straight months as first-time homebuyers pull out of the market with borrowing costs severely limiting their options and inflation already squeezing their incomes. Homeowners looking to upgrade are also waiting for interest rates to peak, not wanting to jump into higher rates on their next mortgage.
Redfin said in the filing that it expects to incur charges of up to $23 million from the job cuts and downsizing, most of which will relate to benefits and severance payments related to the reductions.
Redfin is writing down $18 million worth of inventory tied to RedfinNow as homes have fallen in value since they were purchased earlier this year. Redfin said it continues to buy homes under contract, renovate them and sell them quickly.
The Seattle company hopes to reduce its RedfinNow inventory to about $85 million worth of homes by the end of January 2023. The company currently has about $265 million worth of homes available through RedfinNow, with another $92 million worth of homes under contract.
RedfinNow made sellers an immediate cash offer to purchase their property without them having to put it on the market.
Redfin shares were down more than 8% in morning trading. The stock has fallen about 90% so far this year and was trading at nearly $100 a share less than two years ago.
— The Associated Press