The housing recession brought more pain in September as mortgage lenders, construction companies and real estate firms generated more than a third of the 71,739 monthly job cuts, reports outplacement consultancy Challenger Gray & Christmas Inc.
But there’s more to it than a shrinking base of real estate professionals. With nearly 130,000 financial services jobs cut so far this year, real estate experts say office-using demand is softening.
The financial industry has been the hardest hit by layoffs among the major industries, with 69,664 or 54% of this year’s financial layoffs occurring at mortgage and subprime lending institutions. Challenger Gray & Christmas counts mortgage firms within the financial sector.
“Financial firms cannot cut their payrolls fast enough, especially in the mortgage lending sector,” says John A. Challenger, CEO of Challenger Gray & Christmas, in a monthly summary of layoffs published earlier today. “The heaviest job cutting has occurred over the last two months as the bottom suddenly fell out from the mortgage and subprime markets.”
The pace of layoffs has actually declined compared with 2006. Overall September job cuts, for example, registered 9.7% below the six-month high of 79,459 in August. Job losses were also 28.5% lower than September a year ago when employers announced 100,315 layoffs. Year to date, employers have cut 587,594 jobs, or 8.1% fewer than the 639,229 cuts announced through this point a year ago.
The volume of overall year-over-year cuts may have declined, but layoffs have clearly accelerated among professions with close ties to the housing industry. Job cuts in the financial, construction and real estate sectors generated 97,509, or 16.6%, of this year’s 587,594 layoffs. By contrast, these three sectors represented less than 2% of job cuts for the first nine months of 2006.
A ripple effect from a shrinking job base in financial services is slowing office absorption. National office vacancy leveled out at 13% in the third quarter after 13 consecutive quarterly declines, reports Grubb & Ellis.
Another troubling sign: The volume of space available for sublease increased for the first time in five years to 77 million sq. ft., up from 73 million sq. ft. in the previous quarter. That up-tick suggests that layoffs have curtailed demand for new space, says Robert Bach, senior vice president of research at Grubb & Ellis in Chicago.
“It’s pretty evident to me that the layoffs we’re seeing in the financial services sector are beginning to have an impact on the office market,” Bach says. “The question is, how much deeper will that go? How many more layoffs will we see, and over what time period?”
Given continued depreciation in home prices and mounting residential foreclosures, Challenger predicts that layoffs will cut deeper for a while. “Even if the worst of the crisis is over, as some are saying, we could continue to see heavy job cuts in the financial sector through the end of the year,” he notes in the new report.
“Additionally, we are seeing housing-related job cuts spread to other industries such as insurance, consumer product companies and retailers,” he adds.
While the totals are still small, Challenger Gray & Christmas has tracked 1,900 housing-related layoffs at insurance companies so far this year, with another 1,215 job cuts in consumer products and 985 in retail.
Diane Swonk, chief economist at Mesirow Financial, says the concentration of layoffs in mortgage lending, construction and real estate shows that most of this year’s downturn has been contained within the housing industry. “So far, the economy outside of housing has weathered the subprime crisis relatively well,” she says.
Even so, Swonk agrees with Challenger that the housing slump may drag down more sectors in the coming months. Says Swonk: “The dust has yet to fully settle.”