Real estate stocks crater as new fears of a prolonged US housing market slump trigger wave of job cuts

• Real estate stocks Redfin and Compass have both dropped roughly 25% over the last five days.
• Both companies announced layoffs this week as the US housing market stalls under pressure from rising rates.

Stocks of real estate companies including Redfin and Compass fell Tuesday, with shares of both firms slumping 3.86% and 6.19%, respectively, as both announced job cuts amid fears of a US housing market slump and surging inflation.

Over the last five days, Redfin has seen shares plunge roughly 25%, and this week it reported a substantial dip in expected home-buying. Redfin plans to cut 470 jobs, the company announced.

Compass, similarly, has seen its shares drop about 26% over the last five days. The real estate brokerage plans to lay off 10% of its employees and slash merger-and-acquisition activity, Bloomberg reported Tuesday.

Home sales have fallen for multiple months in a row, and analysts expect the trend to worsen. Mortgage rates have skyrocketed year-to-date, rising from just over 3% in January to 6.38% in June, Mortgage News Daily data shows.

"The strategic actions are part of a broader plan by the company to take meaningful actions to improve the alignment between the company's organizational structure and its long-term business strategy," Compass said in the filing, per Bloomberg.

Redfin had highlighted that a drop in home-buying budgets suggests housing price growth is set to fall. The company also said this week that luxury home sales have taken a 18% hit year-over-year.

The housing market has faced numerous headwinds as of late, and mortgage applications have plunged.

Low borrowing costs and the remote-work wave helped fuel demand, though the Fed's recent hawkishness will bring higher borrowing costs and stem the surge.

CapEcon expects gains to US home prices to slow to zero, after they have climbed about 38% since February 2020, before the pandemic began.

One economist said US mortgage applications are in a "meltdown" as the threat to house prices mounts.

"In the three months to May, applications fell at a 52% annualized rate, compared to the previous three months," Pantheon's chief economist Ian Shepherdson said in a note last week.