Real Estate In 2022: When The #@!$ Finally Hit The Fan

Soaring mortgage rates, slagging sales, thousands and thousands of layoffs: The past 12 months have offered a jarring reminder that what goes up must come down.

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After collectively holding our breath through a lengthy global pandemic, 2022 turned out to be the year we had all been waiting for — but not in a good way.

For many years in costly cities like Los Angeles and San Francisco, would-be homebuyers lamented the soaring cost of housing and talked about waiting for a crash. People who had been around in the 1970s and 1980s marveled at post-Recession interest rates — a stark contrast with the sky-high rates of those folks’ youths — and suggested the good times couldn’t last forever.

Then in early 2020, the coronavirus pandemic hit, and finally, it seemed, housing was in for a reckoning. Fear was widespread, and for a brief moment the market did slow down.

But the crash never came, and for many real estate professionals 2020 turned out to be a banner year. The good times kept coming in 2021, and despite it being “weird, wild and always unpredictable,” as Inman wrote last year, it was in the end lucrative for many real estate agents.

But as they say, what goes up must come down and come down things did in 2022. Though the market broadly speaking hasn’t crashed, home price appreciation has mostly ground to a halt with some experts predicting national declines next year. Thousands of real estate professionals have lost their jobs. And an array of real estate executives have warned of lingering hard times.

All of which is to say, 2022 may not have been a real estate apocalypse — or at least, it wasn’t in every market — but it was a stark and brutal reversal from both the pandemic years and more broadly from the last decade or so.

As this challenging year wraps up and housing professionals brace for potentially more lean times ahead, here are the major trends that have shaped the last 12 months:

Table of Contents

Mortgage rates spiked
Thousands lost their jobs
iBuyers and power buyers had a particularly rough time
Chief executives got the axe
The stock market soured on real estate
The script flipped on disruption
The vibes shifted

Mortgage rates spiked

Rising mortgage rates are the root of seemingly everything bad that happened in real estate in 2022.

Though rates had been low for many years, they dipped to record lows below 3 percent in 2021. Rates inched up to above 3 percent in the early days of 2022, but at least initially the year seemed like it was going to bring more of the new normal of low rates.

The problem, however, was that two years of loose fiscal policy designed to energize the economy also sparked record inflation. That inflation gradually climbed to its highest rate in more than a generation, which in turn prompted the Fed to push back with higher and higher interest rates. Those efforts pushed mortgage rates higher as well.

Chair of the U.S. Federal Reserve Jerome Powell speaks about inflation on Nov. 30 | Drew Angerer Getty Images

By April, rates had risen to more than 5 percent. By September, they had climbed above 6 percent. And then in October rates rose above 7 percent.

Rates have since retreated from their high points, but overall the outcome has been predictable: Demand for loans, and the homebuying they enable, has consistently fallen over the course of 2022. Meanwhile, inventory has been rising even though new listings are sparse — which means homes are sitting on the market longer. And at least in most markets, the days of endless bidding wars and a landscape stacked hopelessly in favor of buyers are long gone.

To a very large extent, the story of mortgage rates in 2022 is the story of real estate this year. Rates influenced everything from the stock market to the labor market to the venture capital world. They shaped consumer sentiment, effectively tied people down to their existing residences and fundamentally changed the narrative about the health of the housing industry.

Key stories:

Thousands lost their jobs

Among the first casualties of rising rates were workers at mortgage companies. With demand dropping quickly, then-recently embattled lender Better laid off a staggering 3,000 workers in March. A month later, mortgage tech provider and title insurer Blend Labs Inc. began what would be the first of three rounds of layoffs that would see it shed more than 500 jobs. Mr. Cooper laid off workers in multiple quarters, ultimately slashing more than 1,400 positions.

Other companies in the lending sector that cut workers include Homepoint, Keller Mortgage, Pennymac, Tomo and more. Rocket Companies offered buyouts to thousands of employees. Sprout Mortgage shut down without warning in July.

Credit: David McNew and Getty Images

While the carnage in the mortgage industry was particularly bad, it didn’t take long until job cuts began spreading to other sectors of the real estate industry. Soon big names, including Compass, Keller Williams, Redfin, RE/MAX, Side, Zillow and others had also begun cutting staff.

In the end, many of these companies carried out multiple rounds of job cuts, and virtually no sector of the housing industry has emerged unscathed.

Key stories:

Inman has covered this year’s layoffs extensively with dozens of different stories. For a comprehensive list, read our overview.

iBuyers and power buyers had a particularly rough time

While layoffs have been a dominant part of the 2022 narrative, the iBuying and power buying sectors also deserve a special mention here. Probably the single most eye-catching story in this genre unfolded in November when Opendoor revealed it lost nearly $1 billion in a single quarter. A significant amount of that loss came from the falling value of homes Opendoor had in inventory, but the news nevertheless sent shockwaves through the industry.

Those losses, however, were really only the tip of the iceberg. Just days after Opendoor’s announcement, Redfin also shocked the world by announcing that it was giving up on iBuying altogether. The move followed in the footsteps of rival Zillow, which bowed out of iBuying a year earlier, and together with Opendoor’s losses renewed debates about the future viability of the cash offer business.

Redfin CEO Glenn Kelman on stage at Inman Connect Las Vegas | Inman

On top of the Redfin and Opendoor bombshells, Offerpad — the second-largest dedicated iBuyer — also reported a loss of $80 million in the third quarter. The loss reversed several quarters of profitability for the company — and added fuel to the debate about iBuying’s future.

There were a few more big bumps in the road for iBuyers, which we’ll get into in subsequent sections. But first, it’s worth recalling the other side of the cash offer industry: power buying.

Power buying, which involves companies providing cash backing for consumers so they can make more competitive offers, caught fire during the pandemic seller’s market. But as that market waned this year, power buyers ran into major trouble. Orchard, Homeward and Ribbon all carried out multiple rounds of major layoffs, and in the latter company’s case it was left with just a skeleton crew in place.

The takeaway here is that both iBuying and power buying emerged during a period of sustained growth in the real estate industry. Now, however, those entire sectors are having to pivot due to challenges they’ve never faced before.

Key stories:

Chief executives got the axe

It’s no surprise that, given the chaos in the housing market, some heads had to roll. But even in a volatile industry at a volatile time, it was a notable year for CEO oustings.

Arguably the most eye-catching story in this genre was the departure of Eric Wu from the helm of Opendoor. Wu is staying on with the company and will now focus on product development in a new role. But for years he was the public face of the iBuying concept, so the shakeup was significant and added another chapter to Opendoor’s rough and tumble year.

Now-former Opendoor Eric Wu at Inman Connect | Inman and A.J. Canaria

Just days after Opendoor’s Wu announcement, Anywhere revealed that it too was reorganizing and that M. Ryan Gorman would leave his role as CEO of subsidiary Coldwell Banker. Gorman is a generally well-liked and well-respected executive in the industry, and Anywhere was far from the most beleaguered company this year, so his departure was arguably even more of a shock than Opendoor’s executive changes.

There were plenty of other examples of CEOs getting the ax in 2022: Carl Liebert, who was CEO of Keller Williams parent KWx; Johnny Hanna, co-founder and CEO of Homie; Frederick Townes, who had a brief tenure at the helm of Remine; and Adam Contos, who left his gig as CEO of RE/MAX.

Key stories:

The stock market soured on real estate

This story starts in the beginning of the pandemic when after a brief dip a surging stock and housing market buoyed many real estate companies’ share prices to new highs.

The peak, it turned out, came in February 2021 when numerous companies including Zillow, Redfin, eXp World Holdings, Opendoor and others all achieved all-time high share prices.

But while the housing market remained strong for another year after that high point, investors began to lose interest. And now, most publicly traded real estate companies have seen nearly two years of steady declines.

Traders on the New York Stock Exchange floor | Scott Heins and Getty Images

While the story of share price drops began last year, 2022 was when things got really dire. EXp is down more than 60 percent since Jan. 1. Compass has dropped 70 percent during that period. Redfin is down more than 85 percent.

The iBuyers have been hit especially hard, with Opendoor down nearly 90 percent in 2022 and Offerpad down more than 90 percent. In October, Offerpad’s share price dipped below $1, a milestone that could get the company booted from the New York Stock Exchange.

Some companies have fared comparatively better. Zillow’s share price over the course of 2022 has only dropped about 40 percent. And Anywhere is down around 55 percent.

It’s also worth noting that the entire market is down. But real estate companies have performed far worse than the overall market: The NYSE Composite is only down about 13 percent since the beginning of the year; the S&P 500 is down about 20 percent.

Lower share prices aren’t necessarily the end of the world for big companies, but they can make those firms more vulnerable to takeovers and create difficulties in raising new funds.

Key stories:

The script flipped on disruption

For years now, one of the big ongoing debates in real estate focused on whether or not the legacy players — so, companies like Anywhere, Keller Williams, etc. — could survive an era of massive, venture capital-fueled disruption. There were partisans on both sides, but the fact that it was a debate at all implied that traditional models were on the defensive against upstarts that were coming to eat their lunch.

This year, however, that script began flipping as many rising disruptors began dealing with their first market downturn.

The struggles of the iBuyers and power buyers, as mentioned above, is a major part of this story. But it also goes beyond those two sectors. For example there’s Reali, a flat-fee brokerage, lender and power buyer that raised $250 million in debt and equity in 2021 — then shut down entirely in 2022.

Or take Redfin, which is currently the most notable example of a brokerage using the salaried agent model rather than the more common commission model. Redfin’s approach to agent pay seemingly works well in boom times, but as the market has tanked some analysts have come to see it as a liability, because the company has to keep paying staffers even if they aren’t closing deals. In early November, one analyst went so far as to argue that the model is “fundamentally flawed,” and downgraded his outlook for the company’s stock.

Robert Reffkin and Brad Inman at Inman Connect Las Vegas in 2021 | AJ Canaria of MoxiWorks

Then there’s Compass. The brokerage founded by Robert Reffkin operates using a more traditional model compared to, say, Redfin, but managed to grow to the largest company of its kind via a policy of uniquely aggressive and expensive recruiting. As the market tanked this year and profitability became a higher priority, Compass nixed its high-flying agent incentive programs that had previously handed out cash and stock to new recruits. The move was an abrupt pivot for the company and prompted a discussion in the industry about whether Compass could sustain its growth.

Not long after Compass ditched its financial recruiting incentives, analyst Mike DelPrete referred to the firm as “the world’s most unprofitable brokerage ever.”

Of course, all of these companies are very different. Redfin and Compass — and many of the companies on Inman’s list of layoffs — are not using even remotely the same business model. But what firms in this category share is an appetite for atypical solutions. They’re disruptors in one way or another. And the market shift has flipped the script on them; a year ago, someone might have asked if Anywhere or Keller Williams needed to become more like Compass or Opendoor. Today, the question is more likely to be if the disruptors need to become more like the legacies.

Key stories:

The vibes shifted

Day to day, the real estate experience on the ground varies significantly by region, company, area of expertise and many other factors. Some real estate pros have had a generally OK year, while others are really struggling.

But whatever individual experiences people are having, one thing is clear: The overall vibe of the industry has shifted. Bullishness is out, bracing for hard times is in.

The vibe shift took longer to take hold than the actual market shift. One of Inman’s most-read stories of 2022 was a piece from May about the cooling market, which included experts speculating on the then-coming months. The reality turned out to be somewhat more dour than the predictions, but the point is that it was already clear in May that things were changing though there wasn’t a general sense of anxiety or fear yet.

Gary Keller at Keller Williams’ mega camp | Keller Williams

Fast forward to August, however, and another of Inman’s most-read stories featured Gary Keller describing the market as “the most confusing I’ve ever seen.” A couple of months later, Keller described 2022 as the “second worst” year in history for real estate deals.

The takeaway, then, is that it took many months of shrinking market activity and rising rates for the reality to set in and for the mood to change. But by late October and early November that change had happened. In earnings report after earnings report, chief executives shared not just middling-to-catastrophic financial losses, but also a belief that the downturn would last well into the future. Among them, Anywhere CEO Ryan Schneider described “a challenging macro housing outlook for the rest of 2022 and 2023.” Compass’ Reffkin made a similar prediction, saying the housing market will “remain challenged during 2023.”

Such comments are a stark departure from what industry leaders were saying during the third quarter of 2021.

It remains to be seen what’ll happen next and how 2023 might ultimately look. But what’s clear now is that both the market and the mood are darker. The question, then, is how long the tunnel is before light becomes visible.