US housing sector braces for job cuts as rising rates crush home sales

Real estate agents, mortgage brokers and appraisers across the United States are bracing for widespread job cuts as home sales tumble amid rising interest rates.

For those working in and around the housing market, the effect of the Federal Reserve’s aggressive action to reduce inflation has been swift and severe.

“It’s gone from feast to starvation, from everyone buying to a slow turtle,” said Linda McCoy, chair of the board of the National Association of Mortgage Brokers.

Real estate agents, mortgage brokers, appraisers and construction groups say they have lost up to 80% of their income since the Fed began raising rates in March. Rates on a 30-year fixed mortgage – at 6.66% – have nearly doubled since and are now at their highest level since 2008.

Home sales fell rapidly as higher borrowing costs and recession fears discouraged buyers. According to the National Association of Realtors, almost 20% fewer homes were sold in August compared to the same month last year. For real estate agents and mortgage brokers, who work primarily on commission, the changing market has decimated their livelihoods and pushed others off the field.

“There is going to be a major shake-up,” said Ken Johnson, a real estate economist at Florida Atlantic University, who is also a former broker. “There are around 1.5 million real estate agents, but this number will decrease by 20% within 24 months. And these are not the only members of the real estate industry who are very dependent on the volume of transactions. There are those tertiary jobs like appraisers, mortgage lenders, all the way to termite inspectors.

Mortgage lenders were among the first to cut staff. In April, Wells Fargo, which issues more mortgages than any other U.S. bank, laid off nearly 200 loan processors and their executives, blaming “cyclical changes in the broader home lending environment.” USAA, Citigroup and JPMorgan Chase later announced reductions in their own home loan workforces.

Line chart of new single-family homes sold, in thousands, seasonally adjusted data showing new home sales remain lower than before rate hikes

Other independent lenders, including Sprout Mortgage and First Guaranty Mortgage Corp, have gone out of business.

Some brokers have made nearly a third of their business from refinancing existing mortgages as rates near record highs in recent years, but refinance applications have fallen 80% in the past year, according to the Mortgage Bankers Association. New mortgage applications fell 29% over the same period.

“The way these rates have increased so rapidly is almost catastrophic for the industry,” McCoy said.

A record 1.5 million Americans worked as real estate agents at the height of the market last year. Obtaining a real estate license is easier than entering other industries with high earning potential, requiring only a high school diploma and three to six months of training leading to an exam. Thousands of new workers rushed in as house prices accelerated during the Covid pandemic, hoping to take advantage of flexible working hours and sky-high benefits. Some 156,000 people joined the National Association of Realtors in 2020 and 2021 alone. This is 60% more than the previous two years.

“This growth was much stronger than the home sales opportunities that were available,” said Lawrence Yun, chief economist for the National Association of Realtors. “The reality is that not everyone will survive.”

In June, Redfin and Compass laid off hundreds of employees. Redfin chief executive Glenn Kelman told staff he feared “years, not months, of fewer home sales”. Compass said its layoffs were “due to clear signals of slowing economic growth”, before cutting more jobs last month.

Although layoff rates tracked by the Labor Department showed the number of real estate workers whose jobs were cut was little changed at 16,000 in August, Johnson said most agents are working as independent contractors and are not counted in employment data. Many will pivot their business models or take on second jobs to supplement their income, he predicted.

Shane Skelly, a real estate agent and home seller in San Diego, “froze” his company’s home flipping arm in June as potential buyers disappeared. His company, Left Coast Realtors, now focuses on making renovations easier for past clients.

“It wasn’t extreme at first, over the last two months it’s really accelerated,” Skelly said. “It’s a bit more significant of a correction than I thought.”

Mike Pappas, managing director of Florida-based brokerage firm The Keyes Company, said he was considering cutting office and marketing overhead in hopes of avoiding having to lay off one of the 3 300 agents of his company.

“We have to react dramatically to adapt to the new normal,” Pappas said.

But for many, falling home sales could push them out of business, said Johnson of Florida Atlantic University.

“Most of those in business today have never sold in a 7% 30-year mortgage rate environment,” he said. “This mortgage rate has gotten too high and I think a lot of people are looking around and saying, ‘you know, what’s next?'”

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