The cooling housing market is catching up with Seattle’s real-estate tech companies.
With fewer people buying homes, the listing site and brokerage Redfin said Tuesday it would lay off nearly 500 employees.
“We don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects,” CEO Glenn Kelman wrote in a message to employees that was also posted on the company’s blog.
It was not yet clear how many of the laid off workers are based in Seattle.
The cuts mark a reversal of fortune for the real estate companies that basked in the recent white-hot housing market. Homebuyers flooded the market and competed for scarce inventory of homes for sale, and that drove up prices.
Investors in companies such as Seattle-based Zillow and Redfin saw the upside. Their share prices climbed to their highest-ever levels in February 2021.
But it’s been downhill since.
Zillow announced in November it would shutter its failed home-flipping business and lay off a quarter of its staff. Now, high home prices and high mortgage rates are dampening homebuyer demand and leading to fewer sales. And the broader stock market is falling.
Redfin’s share price was about $8 Tuesday, a steep drop from $61 a year ago. Zillow’s hit $30, down from $117 at this time last year.
Redfin said in an SEC filing it plans to finish laying off 470 employees by the end of this month. That amounts to about 6% of its total workforce, or 8% when not including the employees of two other companies Redfin acquired, RentPath and Bay Equity.
“We could be facing years, not months, of fewer home sales,” Kelman wrote in his message to employees.
Kelman said the layoffs were “the result of shortfalls in Redfin’s revenues, not in the people being let go,” but also noted a company “shift toward performance and profits.”
Another brokerage, New York-based Compass, also announced cuts Tuesday. Compass said in an SEC filing it plans to lay off 10% of its workforce and shut down its title and escrow software company. Compass has 11 offices in the Seattle area.
Zillow and Redfin operate slightly different business models, but both are likely to be affected by a slower market.
Redfin runs a real estate brokerage with agents on staff. The company also flips houses. Zillow sells other real estate agents ads on its site, promising to help them generate more business. Both companies also offer home loan services.
Fewer home sales could mean less business for Redfin’s agents and less willingness from other agents to advertise on Zillow, analysts from the investment advisory firm Evercore ISI wrote last month.
Both companies posted significant losses last year.
Zillow lost about $528 million, up from a loss of $162 million in 2020 and driven in part by big losses in the shuttered flipping business. Redfin lost about $110 million, up from $18.5 million the year before
At the same time, most of their executives saw pay increases.
Zillow executives saw big increases in their compensation because of a boost in stock options, according to an SEC filing. CEO Rich Barton’s total compensation in 2021 was nearly $21 million, including a base salary of $670,000. That’s about 146 times the pay of the median Zillow employee, according to the filing.
At Redfin, Kelman’s total compensation was about $299,000, roughly four times the median employee. According to an SEC filing, Kelman requested he receive no additional company equity for the year. He also opted to forgo a bonus unless the company had positive net income, which it did not, the filing said.
Other Redfin executives’ total compensation ranged from $2.2 million to $3.2 million.
Not including companies they’ve recently acquired, Redfin employs about 5,800 people and Zillow employs about 7,250.
With the layoffs, Redfin plans to spend less on engineers, analytics and user research, Kelman wrote.
“When we were turning away tens of thousands of customers in 2020 and 2021, we had to hire a thousand employees a month to catch up, requiring berserk levels of recruiting, training and licensing,” Kelman’s message said. “There’s no avoiding that those groups will be hardest hit today.”