Realtors, mortgage brokers and appraisers across the U.S. are bracing for sweeping cutbacks as home sales plummet amid rising interest rates.
For those working in and around the housing market, the effects of aggressive moves by the Federal Reserve to reduce inflation have been swift and severe.
“It went from feast to famine, from everybody buying to turtle slow,” said Linda McCoy, chairwoman of the National Association of Mortgage Brokers.
Real estate agents, mortgage brokers, appraisers and construction groups say they have lost as much as 80 percent of their income since the Fed began raising interest rates in March. Interest rates for a 30-year fixed mortgage ̵[ads1]1; at 6.66 per cent – have almost doubled since then and are now at their highest level since 2008.
Home sales plummeted as higher borrowing costs and fears of a recession deterred buyers. Almost 20 percent fewer homes were sold in August than in the same month last year, according to the national association of realtors. For real estate agents and mortgage brokers, who mostly work on commission, the changing market has decimated their livelihoods and pushed others out of the field altogether.
“It’s going to be a big shakeout,” said Ken Johnson, a real estate economist at Florida Atlantic University who is also a former broker. “There are about 1.5 million real estate agents, but that number will be down 20 percent within 24 months. And they’re not the only members of the real estate industry that are very dependent on transaction volume. There are these tertiary jobs like the appraisers, the mortgages, right down to termite inspectors.”
Mortgage lenders were among the first to eliminate employees. In April, Wells Fargo, which has more home loans than any other US bank, laid off nearly 200 loan officers and their executives, blaming “cyclical changes in the broader mortgage environment.” USAA, Citigroup and JPMorgan Chase later announced cuts to their own mortgage workers.
Other independent lenders, including Sprout Mortgage and First Guaranty Mortgage Corp, have gone out of business.
Some brokers refinanced nearly a third of their existing mortgage business as rates stayed near record lows in recent years, but applications for refinancing fell 80 percent in the past year, according to the Mortgage Bankers Association. Applications for new mortgages fell by 29 per cent in the same period.
“The way these prices have risen so quickly is almost catastrophic for the industry,” McCoy said.
A record 1.5 million Americans worked as real estate agents during the market’s peak 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 up to a degree. Thousands of new workers flocked in as house prices accelerated during the Covid pandemic, hoping to take advantage of flexible working hours and soaring profits. About 156,000 people joined the National Association of Realtors in 2020 and 2021 alone. That is 60 percent more than the two years before.
“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 is going to survive.”
In June, Redfin and Compass laid off hundreds of employees. Redfin CEO Glenn Kelman told employees he feared “years, not months, of fewer home sales.” Compass said the layoffs were “due to the clear signals of slowing economic growth,” before eliminating more jobs last month.
Although layoff numbers tracked by the Labor Department showed the number of real estate workers whose jobs were eliminated little changed at 16,000 in August, Johnson said most agents work as independent contractors and are not counted in jobs data. Many will pivot their business models or take on other jobs to supplement their income, he predicted.
Shane Skelly, a real estate agent and home flipper in San Diego, “froze” his company’s tile arm in June when potential buyers disappeared. His company, Left Coast Realtors, now focuses on facilitating renovations for former clients.
“It wasn’t extreme at first, over the last couple of months it’s really accelerated,” Skelly said. “It’s a bit more significant of a correction than I thought it would be.”
Mike Pappas, chief executive of Florida-based brokerage The Keyes Company, said he is considering cutting overhead costs in offices and marketing in hopes of avoiding having to lay off some of the firm’s 3,300 agents.
“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 altogether, said Johnson of Florida Atlantic University.
“Most people in business today have never sold in a 7 percent 30-year mortgage rate environment,” he said. “That mortgage rate got too high, and I think a lot of people are looking around and saying, ‘you know, what’s next?'”