Real estate companies in the US began to reduce their staff size following a housing downturn in the country. Compass, a real estate company, announced plans to lay off 10% of its workforce and another firm, Redfin, announced an 8% reduction in its workforce amid a slowdown in the housing market in the US. Both companies made these announcements in filings with the Securities and Exchange Commission (SEC). Consequently, the share prices of both companies fell, with Redfin’s stock price plummeting to a new 52-week low. The slowdown in the housing market is attributed to rising mortgage rates and overinflated prices of properties, which affected the buyer’s affordability in the housing market.
US Real Estate Market Overview
According to GlobalData, the real estate industry in the US registered strong growth in 2019, recovering from a minor decline in 2018. In 2020, the industry registered a sharp decline of 6.5% due to the COVID-19 pandemic. However, the market value of the US real estate industry increased from $819.6 billion in 2020 to $853.1 billion in 2021, indicating an annual growth of 4%.
Higher Prices of Houses and Rising Mortgage Rates
The housing market in the US is declining due to the rapidly increasing mortgage rates and record-high prices of properties. The average 30-year fixed mortgage rate increased dramatically since the beginning of 2022, from 3.29% in January 2022 to 6.28% in June 2022. Mortgage rates are at their all-time high since 2008. The Federal Reserve’s tight monetary policy to control rising inflation is said to be the major factor for the soaring mortgage rates.
House prices increased as a result of an unanticipated increase in demand during the pandemic and a lack of inventory of new homes in the market. The supply of new houses was affected due to the pandemic, followed by the Russia-Ukraine conflict, lack of construction supplies, and restrictions on work practices. The demand-supply mismatch increased the prices of houses.
Outlook
In recent months, activity in the housing market decreased dramatically. The slowdown in the housing market could last some more time. However, the tight monetary policy of the Federal Reserve and increasing mortgage rates would raise the cost of borrowing and prevent potential buyers from entering the housing market, which could lead to a decline in house prices.
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