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Housing Woes Ripple Through Financial Sector DOWNSIZING SPREE CLAIMS MORE THAN 11,000 JOBS SINCE LAST FRIDAY
CHICAGO – A wave of job cutting has swept through the financial markets as the housing market continues its prolonged decline. After a fairly quiet July, financial institutions have announced 20,957 job cuts since August 1, with 11,040 or 53 percent coming since last Friday.
With few exceptions, the cuts are directly related to housing market woes, which have quickly spread into the lending industry, according to global outplacement consultancy Challenger, Gray & Christmas, Inc., which tracks job-cut announcements daily.
The 2,400 job cuts announced Friday by SunTrust were attributed to cost cutting measures in place before the current collapse in the credit markets. The other 8,640 job cuts announced over the last three business days by First Magnus Financial Corp., Countrywide, Capital One and the lending unit of Bear Stearns, were tied directly to the housing market situation.
So far this year, the financial industry has announced a total of 87,962 job cuts, 164 percent more than through the end of August in 2006. Of this year’s cuts, 41 percent were related to the mortgage and subprime lending markets.
“There are two big issues behind the cuts. First, demand for new mortgages and home equity loans and other forms of credit have fallen off dramatically. The other issue is the increasing rate of defaults and foreclosures, which is leaving the lending institutions unable to meet their own financial obligations,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
“Last week, mortgage lenders basically told their loan officers and call center representatives to simply stop taking calls. They basically stopped on a dime, which means that thousands of call center workers, data processors, administrative staff, etc., are sitting idle.
“The situation is worsened by the fact that other financial institutions not directly associated with housing, such as Bear Stearns and Lehman Brothers, have been investing billions in mortgage- backed securities, which has made them extremely vulnerable to the turmoil in the housing market. Just last week, Bear Stearns announced that 240 workers would be laid off at its lending unit.”
Of course, the financial sector is just one of the victims in the current housing market collapse. Job cuts in real estate and construction have also climbed dramatically in 2007. Real estate companies have announced 1,950 job cuts so far this year. This does not include the hundreds, if not thousands, of independent realtors and agents who have simply walked away from the field due to the demand downturn.
Meanwhile, construction firms have announced 19,670 job cuts in 2007. Again, this number may underestimate the actual damage, since many construction crews are small operations that rely on independent contractors. The lack of work for these individuals would not be reflected in job-cut announcements.
“We are also seeing job cuts from the companies that provide home building equipment, materials and supplies. The impact is also being felt by manufacturers of home furnishings, painting supplies, household products, etc. The end of housing-related job cuts are by no means in sight. It could be months before we reach the peak,” said Challenger.