Already, the fallout is cascading across the industry.
Wells Fargo has warned that income from its mortgage-lending business may drop significantly in the second quarter. Employees at the bank’s home-lending division and its rival JPMorgan Chase’s unit are being laid off or reassigned to different areas. Real estate brokerages such as Compass and Redfin also announced plans to cut their workforces earlier this month.
“Lay-offs are happening everywhere,” Mr Meier said. “People are cutting rates, cutting costs, with desperate attempts to gain business.”
It is an abrupt shift for a sector that was recently experiencing a hiring boom.
The latest jobs report showed there were 1.8 million Americans working in real estate in May. That is the most on record and almost double the available inventory of existing single-family homes in the US. That jobs figure does not include all the people working in housing-related roles throughout other industries such as finance.
The pandemic, paired with historically low mortgage rates, spurred a massive wave of demand for homes and a refinancing boom. Prices soared and mortgage lenders set records. Now, the rise in rates has tempered the frenzied pace of the market.
“As firms tried to meet that demand, they, of course, hired up quite a bit,” Svenja Gudell, chief economist at jobs website Indeed and former chief economist at Zillow Group, said in an interview. “We’re seeing this sort of normalisation in a lot of areas of the economy. And I think housing is one of them.”
Totally Dead
Just last year, mortgage loan originator Joanna Yu closed roughly $US522 million in loans. In the past month, she has only executed about $US10 million.
“In 2021, we basically had no life at all,” Ms Yu, a 34-year industry veteran who works at US Bancorp, said by phone. “Recent business is almost totally gone. Business in the first three months of this year was still OK, but starting from April, it was totally dead. It’s like vacation time.”
Intensified competition among lenders is fuelling pressure. Last month, Ms Yu said she lost almost every loan to a major international bank because their rates were lower than her bank’s.
“You only have a small pie, and you have 30-, 40-, 50,000 agents trying to compete to get this tiny pie,” she said. “Some banks have become very, very aggressive.”
The real estate industry is used to cyclical changes in the economy and a crash similar to 2008 is unlikely.
Owners have experienced massive gains in home equity in recent years. Plus, the US faces an affordable housing shortage that could help buoy demand.
Certain parts of the industry such as construction could benefit if builders continue to replenish inventory. Construction job openings climbed to a record high in April, according to the latest Bureau of Labor Statistics data.
“We are in a very different spot today – in a very, very different spot,” Ms Gudell said. “And this will look much more like a – if there is such a thing – a plain vanilla recession than what we experienced as part of the ‘Great Recession’.”
For some lenders who have been in the business for more than a decade, the present downturn may not be such a bad thing.
“Everybody and their mother was getting into mortgages because it was the hot thing to do,” said Ben Cohen, a managing director at Guaranteed Rate. “I love times like this because it weeds out people that shouldn’t be doing what we do anyways, because there’s a lot of bad lenders out there. It right-sizes everything.”
Bloomberg Wealth
Source: afr.com
