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.