Though the overall resilience of the job market remains a mystery to experts, the plight of rising interest rates fueling a historic slump in home sales could soon lead to tougher job cuts in the housing sector – which alongside the tech industry has already laid off thousands of workers in recent months.
Despite a stronger-than-expected jobs report on Friday, Pantheon Macro chief economist Ian Shepherdson says resilience is “likely to change over the next few months” as the impact of rising rates spills over into the economy, with rate-sensitive sectors like housing among those who are expected to be hit the hardest.
“There is a certainty that layoffs will soon ramp up across the housing ecosystem,” Shepherdson says, warning that the struggles will be similar to those exemplified by the well-publicized tech layoffs that last week saw giants Stripe and Twitter have hit and could continue this week with Facebook’s parent Meta.
“The housing market has cooled as interest rates discourage new buyers,” explains Andrew Challenger of careers services firm Challenger, Gray & Christmas, noting that both housing starts and permits have declined as brokerage firm Redfin reports that existing home sales in the have fallen 35% year-on-year through the end of October – the biggest drop since data collection began in 2015.
It remains utterly unclear how many jobs could be at stake, but already a number of companies in the housing sector have started mega-scale layoffs, with home-sales platform Opendoor saying last week it had shed about 18% of its workforce. around 550 employees while the company handles “one of the most challenging real estate markets in 40 years”.
Lenders have been hit hard, too: This summer, mortgage giant LoanDepot announced it would cut thousands of jobs, and Wells Fargo is reportedly planning to cut about 2,000 loan officers as mortgage volume plummets 90% year over year.
“The changes we’ve recently made are a result of the broader interest rate environment and are consistent with the response of other lenders in the industry,” a spokesman for Wells Fargo told CNBC in a statement, adding that the bank “regularly “ adjust the workforce to the market conditions.
“Layoffs are not picking up yet – and the bar for laying off staff is likely higher than in previous cycles given how much trouble firms have had to re-hire after the initial Covid shock – but that will pass likely to change over the next few months,” says Shepherdson.
What to look out for
Home improvement giants Home Depot and Lowe’s are sure to provide an update on how the downturn in the housing market has affected business when they report earnings next Tuesday and Wednesday respectively.
Soaring prices have forced central banks around the world to roll back pandemic-era policies intended to bolster markets — and Federal Reserve rate hikes have hit the once-booming real estate market particularly hard. New home sales plummeted to a six-year low this summer and falling mortgage applications suggest the collapse is only going to get worse. Fed Chair Jerome Powell has alluded to the “complicated situation” in the housing market on numerous occasions this summer, saying prices will cool as mortgage rates normalize at higher levels after remaining historically low during the pandemic.
Fed Chair Jerome Powell – haunted by the ghost of Paul Volcker – could take a toll on the economy (Forbes)
Housing market meltdown: ‘Powerful’ slowdown in home prices as warning signs become ‘eerily similar’ to 2000s crisis (Forbes)
The job market added 261,000 jobs in October as unemployment rose to 3.7% (Forbes)