Record-low mortgage interest rates led to a scorching real estate market — and real estate tech firms expanded accordingly. But now that interest rates are climbing, home sales are cooling, and those companies are feeling the freeze.

Compass and Redfin laid off hundreds of workers this week. Redfin cut 470 employees, or about 8% of its workforce, while Compass laid off 450 employees, roughly 10% of its staff.

• Compass said the layoffs were due to “clear signals of slowing economic growth.” Redfin CEO Glenn Kelman said falling demand, high interest rates and the rapid decline of its share price put the company “through heck.”
• This isn’t the first sign of proptech turmoil. Zillow last November announced it would cut 25% of its staff, or about 2,000 employees, when it shut down its home-buying business Zillow Offers due to the “unpredictability in forecasting home prices.”

The housing market whiplash is real. Low interest rates during the pandemic spurred home sales but also created an unsustainably frothy market in cities like Austin and Los Angeles. High interest rates are now causing demand to plummet.

• Thirty-year fixed mortgage interest rates reached an average of 5.23% this week, up from 2.96% at this time last year.
• “With May demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects,” Redfin’s Kelman said.

But the market may soon stabilize. Realtor.com forecasts that interest rates will tick up slightly to 5.5% while home prices are expected to rise just 6.6%. Buyers who waited for competition to cool could finally pull the trigger — which means property tech firms may not be on their heels for long.

— Nat Rubio-Licht (email | twitter)