Housing Layoffs

Written by Tyler Kastelberg

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Happy Sunday!

I hope this note finds your E-trade account looking better than mine.

Derek Thompson published a piece in the Atlantic on Thursday that confirmed what most of us are feeling – the housing market is cooling. Derek makes some interesting points that I overlayed below with comments from a friend in the mortgage industry.

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According to Derek, the housing market hit three major milestones in the past year:

  • Home prices hit a record high
  • The share of homes that sold for over asking hit a record high
  • The number of homes available hit a record low

However, there are also three signs that the market has peaked and is starting to cool:

  • Mortgage rates have soared
  • For-sale inventory is increasing, especially in California and Colorado
  • Google searches for “homes for sale in …” are falling

I spoke with a friend who works in the mortgage industry. He didn’t want to be identified (more on that later), so let’s call him Luke.

Luke lives in SoCal and works for a national mortgage company as a senior operations manager. When I spoke with Luke on Friday, he shared that the demand for residential mortgages is experiencing a dramatic slowdown. While he and his firm expected there to be a pullback in demand when rates rose, nobody expected rates to rise so quickly and trigger the corresponding collapse. For context, refinance requests have trickled to nearly zero. 

Luke shared that mortgage firms are laying off massive amounts of people (20-50% of their staff). In some cases, firms are cutting more than 1,000 people in a single day (… one reason why Luke didn’t want to be identified). Why? Mortgage companies aren’t expecting the demand for mortgages to return anytime soon. Said differently, sentiment is very low.

According to Luke, the last time the mortgage industry experienced a pullback was 2015-2016, but this time it feels way worse.

What about prices? Luke and his colleagues expect housing data to show a stabilization in prices but do not anticipate a drop in home values.  

My take? Borrowing costs have ripped upward, and like Luke, I believe we’ll see a period of stagnation in the housing market. However, if big layoff announcements continue, I might amend my prediction that we’ll see enough forced sales lead to rising inventory and a drop in prices.

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