Layoffs at Zillow, Redfin: 'We're headed for a big dip.'

Zillow.com and Redfin.com, rapidly growing web-based real estate companies, both announced major layoffs this week amid a weakening housing market and what Zillow says could be a "prolonged recession."

Zillow, the Seattle-based website that estimates home values, said it will slash its workforce by 25% in hopes of surviving what it calls "a major economic storm."  From a blog post by Zillow CEO Rich Barton:

The unprecedented economic events that are playing out on a global stage began in our own industry and have made a prolonged recession likely, in our judgment.  We are a young company that is not yet making a profit.  Despite having sizeable cash reserves, we deemed the responsible course was to meaningfully reduce expenses, so that Zillow emerges from the other side of the recession in a very strong position, even if the recession lasts many years.

Earlier in the week, Redfin, the discount brokerage and listings website featured frequently on this blog as a source of information, announced it was laying off roughly 20% of its employees. From a blog post by Redfin CEO Glenn Kelman:

Today Redfin laid off roughly 20% of our employees.

Unlike other startups, our industry’s recession started a year ago, when home prices first plunged.

Since then, we’ve fought like starving animals, and with some success: while industry-wide transaction volumes dropped 33%, we grew revenues by nearly 50%. Traffic grew more than 300%.

Even a month ago, we were raising 2009 revenue projections. All our markets, now including Chicago, contributed profits.

But the past few weeks have seen a major reversal. As the stock market wiped out prospective down-payments, tours and offers dropped 30%. Transactions that were done came undone. October will still be pretty good, then we’re headed for a big dip.

Two cents: I'm disappointed to hear news like this. I'm a fan of the web-based real estate companies like Zillow, Trulia and Redfin. I think they provide a valuable service to nonprofessionals trying to better understand the real estate market. I hope they succeed.

Secondly, it's worth taking a step back and placing this in context: No one yet knows the true extent of the economic fallout from the collapse of the real estate and credit bubbles in this country. It's quite likely that, at Dow 14,000, we had a stock market bubble as well. What Redfin is saying is that an already weak housing market worsened dramatically in the past few weeks.

Your thoughts? Comments? E-mail story tips to Peter Viles

-- Peter Viles

Hat tips: Cal and Laker, via comments.

Comments

[Dan]

"...we've fought like starving animals..."

Well, let's not get carried away. I'm sure you feasted like kings during the bubble when cash was flowing.

A rising tide lifts all ships. And conversely.... well, you know....

[anonymous]

I think it depends on who you are talking about when you say the housing market worsened dramatically over the past few weeks.

For investors? Definately yes. For a home buyer who is looking for a home, not an ATM, definately not. Let's see the prices come down for those of us who want to live there.

[MyLessThanPrimeBeef]

I know some here treat sellers like these guys are their mothers-in-law. It's absolutely un-called for.

Personally, I wish them well and my suggestion to them is this: Carpe Diem! Seize the day! Get out now.

We are headed for a big dip.

[john cook]

Redfin isn't the only Seatltle online real estate startup cutting back. We just reported on the cuts at Zillow too...

http://www.wherearejohnandtodd.com/2008/10/zillowcom-cuts-40-employees-in-painful-decision-904/

John Cook

[Nelcisco]

In the tranaction that were done came undone piece, Allie mentions that if one has 20% down they can really call the shots, true but the inventories are rising and most don't have 20% down, that's been the issue for a while now.

Talking about incentives by banks and builders in a form of commissions to buyers agents etc. will not solve the finance
problem people are facing, RE people need to start facing that fact and stop dancing around the issue by finding ways how to be creative,it will just go back to what we've been seeing the past 3 to 4 yrs.

[OverIt]

Hey bartender, I'll have a shot of something clear while I try to sort through the cognitive dissonance going on here.

Wall Street and the NAR say one thing (look for a general economic turnaround in Q2 '09) but Redfin (through their ACTIONS) says hunker down and hold on. Hmmmm, who should I believe? A Lawrence Yun? Or someone that is experiencing a completely different reality?

[zach]

Until the retards start listing their homes at 1998 prices this nation is in a stalemate

if they wait to long they may have to list their homes, estates, condos at pre 1980's prices

We have money to buy but we know they are not worth the 1300% markup that has been applied since 1994

[Tim K.]

It's not clear to me that Redfin's business model can be supported with "normal" transaction volumes. It appears they have not been profitable during any of the boom times, and since transaction volumes are still relatively high during normal times like the mid-90s, it would appear they are doomed unless they have some up-front expenses they are still paying off.

Christopher Thornberg made an excellent comment that got aired in an interview on NPR's Marketplace last week - that all this talk of a credit "freeze" is really nonsense. Credit is there for people who can actually afford a home and have a 20% down payment. It just *looks* like a freeze compared to the hot-liquidy goodness of the most recent irresponsible lending times.

As much as I like Redfin's website, I they really need to get leaner, and fast. If they can't handle volumes when credit is relatively normal, which is what this is, then they have no business being in business.

[Nick]

Both companies are in an unfortunate position: developing revolutionary new tools to distribute information about the housing market and give more power to individual buyers and sellers, while major financial support comes from the RE industry itself which is in the process of correcting from the largest bubble in recent history.

It's really a shame our government is more interested in giving payoffs to the people who caused the bubble than fostering real, productive fixes to help prevent similar bubbles in the future. Imagine if even one billion of the 810 billion the government just allocated to pay off bubble facilitators was instead spent to make zillow (or something like zillow) a fully online, public, free, searchable, uniform data repository for all RE transaction, listing, sales, and loan information. It's like imagining a magical world where our government helps the people, instead of just giving billions to special interests and corrupt insiders.

[Big Jim Slade]

Party's over dude. Got to pay the price now.

[CompaJD]

Are they telling us the truth or are they giving us a ZESTIMATE?

[socalinvestor]

I too am an avid user of both websites, they take the power from the brokers and put it in the hands of the ordinary buyer. But the fact is they are a product of bubble times just like Pets.com was. The good thing is that they are taking steps to weather the current downturn and will probably come through it just fine, perhaps leaner and meaner. If they don't, someone else will, its simply the way of the future.

[mbob]

Dan

The Italian version is that ".....in a tornado, even turkeys fly."

[Drew]

What? A dot-com that could never figure out how to "monetize eyeballs" is in trouble?

Say it ain't so!

[Nelcisco]

there is something about Seattle that produces unsuccessful companies, other than Microsoft, Boeing, Starbucks, Costco, Safeco Ins., Nintendo, those are large
corporartions, but the dot coms seem to never really do well
longer term. Well, I lived the Seattle/ Tacoma area for 5 yrs.
and I found that intellects aren't very good leaders and visonaries in business, especially if they're hate America liberals!!!

[Uncle Billy Now Owns Banks]

"We are headed for a big dip"

I hope you mean "headed for a big French Dip"

http://www.philippes.com/

[Homebuyer]

I too am a big fan of the real estate web sites. Unfortunately, none of these websites provide the service a homebuyer needs... finding a home based on what we can afford and a mortgage too. For those in need, check out: www.icanbuy.com

[upthecreek]

Seatle seems to be the Capital of loser companies.. They also gave us WAMU......

http://en.wikipedia.org/wiki/WaMu_Center

[jbunniii]

This is great news! It's high time that these real estate shills had the opportunity to find something more productive to do with their lives.

[Bobby]

I am a real Estate Appraiser in Silverlake Los Angeles. I can totally agree with the sentiments of Zillow and Redfin. The last 3-4 weeks have changed everything. One thing not mentioned in the article is that mortgage rates continue to rise near 7% now. No one is getting loans or the ones they can get are unsavory. It's not a good time to stop drinking.

[sheila]

i like those sites, and they have nothing to do with the problems bitter renters are facing now. they offer ALTERNATIVES to the status quo, and tried to get information to the people. why are people hating on that?

and nelcisco, why do you hate "intellects" (sic) so much? is having brains now officially un-american in your demographic? sorry for the big word, america. didn't mean ta hate-cha (insert inappropriate wink here).

i totally disagree and believe that both zillow and redfin are "visionary," trouble is, they aren't "mercenary," and that seems to be the only way to make a buck in the current corporatocracy - rip everyone off then demand a government bailout, then rip everyone off again. i guess that "vision" means they "love america." sigh. can we go back through the looking glass now? i'm getting dizzy.

[Nelcisco]

Sheila, I'm sorry if it sounds that way. I don't hate anyone, I get angry at the ones like my brother who because he's a cardio surgeon he knows everything, smart in medicine, smart in business, smart in politics especially when it come to badmouthing republicans, I'm middle of the road and I'll tell ya Bush has been more Iraqs president than ours, allowing the gangsters on Wall street to fleece the people like they did.

I'm a mortgage pro who has gone to work everyday in this crazy business learning new guidlines, index's how to put a loan that fits the borrower's need and then sell it, but of course because he's "smarter than everyone" the Dr. know mortgages more than me.There's nothing I know that he doesn't know already.

He lives in Seattle and when he comes to visit LA he's always commenting on how angelinos are dumb fake people with no education unlike the Seattleites who are the
most college degreed city per capita in the country, but yet when I was living there the snobs of academia were the most compassionate libs with a social conscience but terrible employers. (not all, but as a CULTURE it's that way)
and yet California paticulary So. Cal, specifically LA has a culture of winning,of kick ass and take'in names sales environment producing uneducated successful happier people. I know because I lived in both cities. LA by itself is amoung the top 10 economic power in the globe, while snob intellectual Seattle is not a player. Beautiful city but not a player! WHAT DOES THAT TELL YA???

[E]

They're not going away. Redfin will clean up with all the empty condos in the next couple years.

Who needs a RealtorTM to open a door when all the units look the same?

Redfin + good all inclusive photos (the good and the bad) = one stop condo shopping.

[Nick]

I remember in 2006 when people were saying "this market will never stop going up... LA is so desirable that it'll always be super high"... yeah... sounds like bubble talk to me. There's only one result for a bubble - and this has been true throughout history - a giant pop. I predict another 50% drop in home prices before it's all over... between the nervous buyers, tight credit markets, and stupid sellers, it's gonna be a long while before it's over.

[uwishfor2much]

"Until the retards start listing their homes at 1998 prices this nation is in a stalemate

if they wait to long they may have to list their homes, estates, condos at pre 1980's prices

We have money to buy but we know they are not worth the 1300% markup that has been applied since 1994

Posted by: zach | October 17, 2008 at 01:33 PM"

Thats pretty funny...1998 prices. I think you'll be waiting a while. Good luck trying to find a $1 mil. home for under $350K. What you want exists now... Inland Empire!