Soaring Mortgage Rates Continue to Bother Real Estate Tech Companies

The harsh realities of the property market have left the real estate tech sector grappling as the market continues to witness skyrocketing mortgage rates. While rising rates have been a state of concern for other verticals, too, the gnawing impact on the RealTech companies looks bothersome.

The story of Divvy Homes, a once-promising rent-to-own startup, marks the stark reality that companies in this space are facing. Back in September 2019,

Divvy Homes made headlines when it secured a substantial $43 million Series B round on its mission of helping Americans transform into homeowners from renters.

Luck favored the company initially, as it continued to be on track till February 2021, when it successfully closed a $110 million Series C funding round.

Divvy Homes Run Out Of Luck In 2021

A dramatic shift in the housing market threw the company off its growth trajectory. With mortgage rates doubling and the sales of homes dropping, the future of Divvy looked uncertain. The core business model of this startup involved purchasing homes and renting them to individuals to build equity. However, with rising interest rates, they had to charge higher rates from renters to cover the additional mortgage expenses.

A WARN letter revealed that the company slashed jobs across different roles, including vice presidents of sales, human resources, compliance, account executives, and software engineers.

The very next year, in 2022, Divvy found itself charging higher rates compared to traditional landlords in certain markets. This development sparked concern among the industry players.

The economic fallout of the pandemic further intensified the crisis. The demand and supply of inventory in the housing market were significantly disrupted.

To cope with the economic struggles, Divvy Homes started its initial phase of layoffs. They let go of 40 employees in September 2022, which marked the start of economic turmoil for the company.

It laid off even more employees in February 2023, and in a recent development, the company has fired another 94 employees.

With this move, they slashed their number of staff to half. For Divvy, this has been a painful decision, but it had no other alternative as mortgage interest rates surged to a two-decade high.

Despite going through the tumultuous journey, Divvy Homes remained tight-lipped about their financial condition. The company refused to comment on the recent layoffs.

Other Realtech Companies Face The Wrath Of Rising Mortgage Rates

Divvy Homes is not an isolated case that experienced the fallout of rising mortgage rates. The entire RealTech or PropTech sector has been hit hard by increasing interest rates. Even established players like Redfin, Compass, and Opendoor had to resort to layoffs.

Startups like Homeward and Better.com are also reeling under the wrath of increasing mortgage rates. The economic ordeal was too intense for some startups like Reali to survive. After laying off most of its workforce, the company was eventually shut down.

The dynamic nature of the real estate vertical makes it sensitive to fluctuations in mortgage rates. The ongoing struggle of the RealTech companies reflects the cyclic nature of the industry, with the players experiencing ups and downs. It remains to be seen how these companies behave while exploring turbulent waters to stay afloat.

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