Due to economic conditions like rampant inflation, the interest rate hikes that the US Federal Reserve has instituted to slow down raising inflation rates have finally begun to make a major negative impact on the housing market. As rates go up, borrowing becomes more expensive, and as a result, it becomes harder for buyers to secure home lending. In the wake of this slowing housing market, one major real estate brokerage finds itself having to navigate these growingly turbulent waters.
Compass Inc., once known as one of the most innovative and tech-focused real estate brokerages in the country, announced recently that it’s instituting another “workforce reduction” to further minimize its operating costs. While it’s not clear exactly how many Compass employees will be let go, Compass filings did specify that severance payouts are likely to run into at least $10 to $12 million, indicating that this newest round of job eliminations is likely to be rather sizeable.
What is clear, however, is that Compass is doubling down on its commitment to designing and implementing new technological approaches to real estate. In the same announcement, company representatives also stated that its US-based technology engineering departments would not be subject to any layoffs. It’s all part of the brokerage’s strategy to reduce its costs as the housing market continues to slide even further than it has in 2022.
The choice made by Compass to trim even further fat from its workforce wasn’t made in a vacuum - the writing is on the wall when it comes to the current conditions present in the housing market. House prices have declined for four consecutive months from June of 2022, putting an end to the historic 124-month streak of price increases that preceded it.
Make no mistake - this price correction is significant. While it might not be as drastic as the market upset that accompanied the 2007 economic crisis, it’s the second-largest on record since the end of the Second World War according to Fortune magazine. The downward pressure on home prices is likely to continue for the foreseeable future, though it’s unclear how long this new trend will persist at this time.
Meanwhile, it’s not just Compass facing some tough times recently, as there are other brokerages around the country that have run afoul in the new economic landscape. In this case, many of the issues these companies are facing stem from lawsuits brought by former clients as homeowners begin to sue real estate professionals of all stripes as homeowners seek recompense for lost property values.
Homeowners filing suit against real estate agents and brokers aren’t unheard of, of course; sellers often sue when they feel there were too many delays in listing their home or buyers who ended up in a home valued below their purchase price because of overlooking minor issues during the inspection process, for example. However, the frequency of these lawsuits has increased significantly over the past year according to Business Insider. As these events tend to coincide with downturns in the housing market, the trend is likely to continue going forward.
In times such as these, it’s best to keep a level head even when things begin to look bleak. Experienced real estate professionals know that giving in to fear, uncertainty, and doubt is a good way to make a bad situation much worse. At the same time, however, it is important to keep expectations realistic, especially as most industry experts are predicting that the housing market will continue to decline in the immediate future - and this means that more issues like large-scale layoffs at brokerages and more unhappy clients bringing suit against agents and brokers is likewise going to persist for now.