The once-hot housing market has been humbled in recent months. Higher mortgage rates, raging inflation, and widespread recession fears have brought the market to a standstill. Now a wave of mass layoffs at the country’s largest and highest-profile tech companies could hobble it even further.
Meta, formerly known as Facebook, laid off about 11,000 workers. Amazon has plans to let go of about 10,000 employees. And there’s been an ongoing bloodbath at Twitter since Elon Musk became the “Chief Twit.” These are the kinds of companies that grab big headlines and often influence the direction of smaller organizations. They also play an outsized role in the nation’s psyche.
Most homebuyers want to ensure their jobs are secure before making what is often the largest purchase of their lives, one that many will spend the next 30 years paying off. Higher mortgage rates have sidelined scores of potential homebuyers, while concern over the economy has caused many others to hold off on purchasing homes.
Nearly 137,000 workers were let go from about 850 tech companies and startups this year, according to tracking website layoffs.fyi.
“Financial uncertainty is never good for housing markets,” says Patrick Carlisle, chief market analyst for the San Francisco Bay Area at Compass. “If people are fearful of losing their jobs, they’re less likely to embark on their largest financial investment.”
Renters could also be affected. They are often wary of finding a new apartment, agreeing to a large rent hike, or purchasing property if they’re concerned about keeping their jobs.
“As people experience or read about job losses, they get concerned. They will then pull back on their willingness to rent a new apartment or buy a home,” says Robert Dietz, chief economist of the National Association of Home Builders. “In an extreme case, somebody may have to get roommates or move in with family.”
More than half of adults, 53%, delayed a big financial milestone because they were worried about the economy, according to a recent Bankrate.com report. About 25% put off home improvements and renovations, while about 15% delayed buying a home. (The report was based on a survey of nearly 2,500 adults taken in October.)
However, home sales will still happen, albeit at a lower level. Those with growing families will still trade up into larger homes, while empty nesters will continue to downsize. And people will still move for new jobs—they just might not be quite so mobile.
“Even during the Great Recession, people were still building and buying homes … but at reduced rates,” says Dietz.
Will rising layoffs lead to a housing crisis?
Even before the recent torrent of layoffs, the housing market was struggling.
Rising mortgage rates have made it financially impossible for many buyers to become homeowners. This was all part of the Federal Reserve’s plan to cool off the economy, the housing market in particular, by raising interest rates. Higher interest rates aren’t just hurting homebuyers; they’re also affecting companies, precipitating some of these layoffs.
During the COVID-19 pandemic, when interest rates were very low, many tech companies went on hiring sprees. But as interest rates rose and the economy shifted, many business leaders realized they could no longer afford the legions of workers they’d recently brought on. So they began laying off workers en masse.
Many economists say there is no cause for concern—at least not yet. Nationally, unemployment is still extremely low. And many companies that don’t generally make big headlines are still seeking tech workers. That’s left many economists hopeful that these pink-slipped workers will still be able to find new jobs relatively quickly.
“The job market remains very solid,” says Nadia Evangelou, director of real estate research at the National Association of Realtors®. “The unemployment rate remains near record lows. We have two jobs for every unemployed person.”
“In the big picture, these are not going to be huge, pronounced layoffs,” says Anneliese Vance-Sherman, a regional labor economist at the Washington State Employment Security Department. She covers the northern part of the state, including Seattle. “But I also don’t want to lose sight [that] for a number of families this is life-changing, We are in a confusing time right now. … There are plenty of reasons for people to be on edge and concerned.”
Vance-Sherman uses a metaphor to describe what’s happening now as prominent tech companies shed large percentages of their workforce.
“If you drop a pebble in a pond, you see those ripples. Those first couple of waves are tremendous. That’s what we’re seeing right now,” she says.
Subsequent ripples aren’t nearly as pronounced.
Meanwhile, other economists believe these recent layoffs are just the beginning of a much bigger and more impactful wave.
“It’s the leading edge of job losses that are going to come about,” says NAHB’s Dietz. He expects a recession—if, in fact, the nation isn’t already in one. “That rise in unemployment is coming.”
Some parts of the country will be hit harder than others
While the national housing market is expected to hold up fairly well against the layoffs, some tech-heavy markets will fare much worse.
Home prices are determined by supply and demand. If there aren’t as many people looking for homes or an influx of cheap housing hits the market, such as short sales and foreclosures, prices tend to come down.
Tech hot spots are likely to be hurt the most by these rounds of downsizing. Places like Silicon Valley in California; Seattle; Sacramento, CA; Denver; Austin, TX; Raleigh, NC; and the Salt Lake City and Provo, UT, area could be more affected, says Devyn Bachman, senior vice president of research at John Burns Real Estate Consulting.
“Anytime there are layoffs, that’s a reduction in the number of buyers in a given market,” says Bachman.
In the San Francisco Bay Area, the impact of the tech troubles hasn’t so far hurt the broader housing market. But the downtown San Francisco condo market, popular with tech workers, has begun to feel the effects of the shift. Median prices for two-bedroom units dropped 14% year over year, according to Compass. (Prices were from August, September, and October of this year compared with the same period last year.)
Is the U.S. hurtling toward a recession?
Some believe the layoffs are a sign the nation is hurtling toward a recession. About 91% of U.S. CEOs believe America is heading toward one within the next 12 months, according to the professional services company KPMG.
However, this doesn’t appear to be a prelude to another Great Recession–era housing meltdown, say real estate experts. The mortgage market is much more stable today.
In the 2000s, there were also scores of bad mortgages that went bust when they ballooned suddenly and homeowners couldn’t afford the higher payments. Foreclosures flooded the market, and that inundation of cheap housing brought home values way down.
There were also many more homes than there were buyers back then. This time around, the opposite is true.
“There is now a housing shortage of anywhere from 1 million to 2 million homes for sale,” says Dietz.
So even if there are widespread layoffs, people will still need places to live. That should put a floor under home and rental prices.
And while foreclosures will rise if unemployment ticks up, most homeowners will remain employed or find new jobs. Those struggling financially who can’t afford their mortgage payments may choose to sell their homes instead of going into foreclosure. Prices are still high, and they could even walk away with a profit.
Says Dietz, “The housing market is in a lot better shape than it was in 2007.”
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