Tech Layoffs Continue as Shares Fall and Interest Rates Rise

“High rates are painful for almost everyone, but they are particularly painful for Silicon Valley,” said Kairong Xiao, an associate professor of finance at Columbia Business School. “I expect more layoffs and investment cuts unless the Fed reverses its tightening.”

At the moment, this is unlikely. The market is expecting two rate increases by Federal Reserve this year, at minimum 5 percent.

If you expect a quick recovery in real property, this is trouble. Low interest rates have not only driven up house prices, but they also made it easy for companies like Zillow, Redfin and Opendoor Technologies to enter a business once considered somewhat disreputable: flipping homes.

Zillow projected that the company would soon earn $20 billion annually from selling 5,000 houses per month. Investors were thrilled and Zillow was valued at $45 billion. A hiring boom also led to an increase in the number of employees to 8,010.

Zillow’s notion was to use artificial intelligence software to make a chaotic real estate market more efficient, predictable and profitable. Marc Andreessen, a venture-capitalist, had spoken of this type of innovation in 2011. He said that digital insurgents would overthrow entire industries. “Software is eating the world,” he wrote.

In June 2021, Zillow owned 50 homes in California’s capital, Sacramento. It owned 400 properties five months later. One was an unremarkable house with four bedrooms and three bathrooms in the northwest corner. It was constructed in 2001. It is easily accessible to numerous parks and the Airport. Zillow paid $700,000.

Zillow placed the house on the marketplace for several months but nobody wanted it even at $625,000. After the house had been unceremoniously removed from the flipping market, Zillow sold the house last fall for $355,000. Although low rates made it appear possible for Zillow to shoot for the moon with their flipping business, it was not possible.