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As U.S. stocks enter a bear market and the housing industry experiences a rapid shift, fast-growing brokerage Compass revealed Tuesday that it is in the process of laying off approximately 10 percent of its workforce.
The layoffs will include about 450 full-time employees, though no agents will be let go. In addition, Compass is pausing expansion for the time being. Some layoffs had already happened Tuesday morning, while others would take place later in the day. Trading of Compass shares on the New York Stock Exchange was also halted Tuesday as news of the layoffs went public.
Compass founder and CEO Robert Reffkin announced the layoffs to the company in an email, which Inman has obtained. The email mentions inflation, rising interest rates and the likelihood of a recession, and notes that the “economic environment has consistently worsened over these last few months.”
“I have been through three of these economic cycles in my career so far, and I believe that in challenging times, companies that move quickly and decisively emerge stronger and better than those who take half-measures or no action at all,” Reffkin continued in the email.
The email notes that departing employees will receive healthcare and severance packages.
In addition to letting go of hundreds of employees, a filing with U.S. Securities and Exchange Commission (SEC) also revealed that Compass will be winding down title and escrow software maker Modus Technologies. Compass bought Modus in 2020 amid a push to create an end-to-end real estate technology platform.
However, Compass’ SEC filing notes that “the shutdown of Modus is not a reflection of any plans to depart from the company’s commitment to title and escrow services.”
News of Tuesday’s layoffs comes after a period of rapid growth for Compass. Since Reffkin founded the brokerage in 2012, it has expanded rapidly across many of the most competitive markets in the U.S. By April, it managed to be ranked the largest brokerage in the country by sales volume in the T3 Sixty Mega 1000, dethroning Anywhere, which was then known as Realogy.
Compass’ aggressive expansion and recruitment tactics have also brought it into conflict with other major players in the industry, and it is currently engaged in legal battles with Anywhere, the Agency and other firms.
Now, however, that expansionist strategy is crashing headlong into an economic environment unlike anything that has existed in recent years. Just this week, for instance, mortgage rates surged past 6 percent — more than double what they were at only months ago. At the same time, a Labor Department report published Friday showed that inflation hit 8.6 percent in May, the highest reading in 40 years.
Wall Street also entered a bear market this week, meaning the S&P 500 has fallen more than 20 percent since its recent high.
Compass is not the only company impacted by this ongoing economic chaos, and in total more than a dozen other firms have let employees go in recent months. Many of the companies that have laid off employees — for example Mr. Cooper, LoanDepot and Better — operate in the mortgage space and are contending with lower demand for home loans thanks to rising rates. Others such as Tomo, Homie and Side are tech-centric startups.
Compass’ layoffs Tuesday appeared to be the first-announced and most significant from a major brokerage.
However, less than an hour after news broke of Compass’ layoffs, Redfin CEO Glenn Kelman announced in a blog post that his company was also letting go of 8 percent of its employees. Kelman explained the move by saying that demand in May was “17 percent below expectations.”
All in all, the rash of recent layoffs has begun to look similar to the spring of 2020, when the rapidly spreading coronavirus pandemic prompted layoffs at an array of companies including Douglas Elliman, Realtor.com operator Move, Opendoor, and Compass, among others.
Despite the staffing reductions, though, Compass on Tuesday was still onboarding new agent teams.
In his email, Reffkin also ultimately concluded that “the business is strong” and, referring to the layoffs, argued that “thoughtful decisions like the one being made today make us even stronger.”
Update: This post was updated after publication with additional information about the layoffs, and with background on Compass and the state of the market.