Real estate company Redfin announced on Wednesday that it was laying off 862 people and shuttering its high-tech home-resale business. To make the tough news as easy to swallow, CEO Glenn Kelman organized his email to employees into sections like “Hello, Adversity,” “Who We Are” and “A Culture of Caring in a Cyclical Industry.”
The economic slowdown has hit real estate companies like Redfin especially hard and sharply this year, as the most booming housing market in U.S. history was quickly upended as a combination of record prices and newly elevated interest rates made many buyers unable or unwilling to pay, causing a sharp decline in home sales.
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As part of the restructuring, Redfin is following in the footsteps of real estate marketplace Zillow and exiting the high-tech home-flipping business of “iBuying,” in which companies buy homes as cheaply as possible, renovate them and then resell them, hopefully for a profit. The best-known iBuyer in the field, Opendoor Technologies, laid off 18% of its staff last week, citing “one of the toughest real estate markets in the last 40 years.” The company's shares have fallen 92% in the past year and are down nearly a third in the past five days.
Job cuts and strategy shifts at RedFin and Zillow, as well as OpenDoor's financial woes, suggest the enthusiasm and investment in algorithmic home flipping may be over as quickly as it began.
Kelman said that as the market cooled, the company's iBuyer business, RedfinNow, was no longer worth the “money and the risk,” leaving the company with a pile of unsellable homes. “We've put hundreds of millions of dollars into homes you don't want to own right now,” Kelman wrote. The company expects to lose at least $22 million on the project this year, and Kelman suggested he didn't feel good about lowballing his customers in order to get the biggest possible spread on resale.
“It would be good to focus on our original mission: making housing affordable for people, not cheaper,” he wrote.
Redfin laid off 8% of its workforce in June, but Kelman said further cuts were necessary after the company concluded that the “downturn” in the housing market will continue through the end of next year and the market size could shrink by nearly a third from its 2021 peak. As a result, “these layoffs suck, but they are unavoidable,” he wrote to employees, adding elsewhere, “I am sorry we do not have the revenue to continue paying you.”
Kelman said the cuts will reduce the company's workforce by at least 13%, and could reduce it further if more employees choose not to take alternative roles after their roles are eliminated. Overall, the company's workforce will be down by more than a quarter since April, he said in the email.