Redfin Corp. is shuttering its iBuying business and laying off workers for the second time in almost five months, as the likelihood of a prolonged U.S. housing slowdown continues to
The brokerage said in a blog post Wednesday that it would lay off more than 860 workers, roughly 13% of its staff. The decision follows an earlier reduction announced in June and brings the total number of Redfin employees down 27% since the end of April.
The housing market has slowed significantly this year as borrowing costs have more than doubled. That's led companies including Redfin, Opendoor Technologies Inc. and Compass Inc. to shrink their workforces. Shares of Redfin, which reports third-quarter results after the close of trading Wednesday, dropped 4.3% to $3.56 at 9:37 a.m. in New York trading Wednesday. The stock had plummeted 90% this year through Tuesday's close.
"It's quite possible the housing market could recover in the back half of 2023," Chief Executive Officer Glenn Kelman said in an interview. "We can't hope that will happen. We have to assume it will be bad and make sure we can run a self-sustaining business in any market."
Kelman said in the blog post that the June layoff was based on the assumption that the company would sell fewer homes in 2022. The current cuts are based on the expectation that the market downturn will last at least through 2023, he said.
Many of the workers that the company is letting go were part of its iBuying operation, RedfinNow. The business model, which functions like a large-scale home-flipping operation, gained popularity in the years leading up to the pandemic, as companies such as Redfin and Zillow Group Inc. sought to tap into a market created by pioneer Opendoor.
Now, Redfin and Zillow have closed their iBuying businesses, which bought homes from consumers, made light repairs and put the properties back on the market. Opendoor, meanwhile, is embracing a third-party marketplace designed to grow revenue while limiting the amount of capital the company has to put at risk.
"We have long been a skeptic on the iBuying business so this is a positive development for us," analysts at Stephens said in a Wednesday note, referencing Redfin's decision to close the operation.
Redfin's foray into iBuying was more cautious than other players, with the company describing the operation as a way to support its core brokerage business. Even so, it required large outlays and running it prudently meant sometimes alienating potential customers by making conservative offers.
"Our decision was driven in part by the housing correction, but the overriding factor was the increase in the cost of capital," Kelman said of the decision to close the business. "Home prices will at some point stabilize, but the cost of capital isn't going back to where it was in 2021."
