Mortgage rates are climbing, home sales are dropping and some of the nation’s largest real estate companies are announcing layoffs.

Redfin said it cut about 8% of its employees and Compass said it would reduce its workforce by 10%.

The cutbacks are the latest indication that the red hot housing market is showing signs of cooling.

In a memo to employees Tuesday, Redfin CEO Glenn Kelman said the company wouldn’t lay people off unless it absolutely had to – but that time has come.

“We’re losing many good people today, but in order for the rest to want to stay, we have to increase Redfin’s value,” he wrote. “We owe it to everyone who has invested your time or treasure in this company to become profitable, and then very profitable.”

Demand for Redfin’s services in May was 17% below expectations, Kelman said. As a result, the company isn’t generating enough work for agents and support staff and fewer sales means less money for bigger projects.

“Today’s layoff is the result of shortfalls in Redfin’s revenues, not in the people being let go,” he said.

Divisions that saw a big ramp up during the housing boom are the most affected by the layoffs, Kelman wrote in the memo. Since many of the tools needed to complete transactions have been built, there is less need for engineers. He said the company would also spend less on analytics and user research.

“When we were turning away tens of thousands of customers in 2020 and 2021, we had to hire a thousand employees a month to catch up, requiring berserk levels of recruiting, training and licensing,” Kelman wrote. “There’s no avoiding that those groups will be hardest hit today.”

Kelman said the company will continue to invest in its online presence, on-the-spot tours and RedfinNow, the company’s ibuying arm that purchases homes in cash, allowing homeowners to sell their home without listing it.

This is the second time Redfin has announced layoffs in the past three years. During the early days of the pandemic in April 2020, Redfin cut staff and furloughed more than 40% of agents as the housing market seized up.

At Compass, 450 of its 4,500 employees will be cut, “due to the clear signals of slowing economic growth,” according to a spokesperson’s statement. The layoffs come in business divisions across the company, but won’t include agents, the company said.

In addition to the layoffs, the company said it is pausing hiring, expansion and mergers and acquisitions until the end of 2022.

These cuts follow other contractions in the real estate industry as the red hot housing market has begun to smolder.

Earlier this spring, several mortgage companies pulled back on operations that they previously had expanded in order to adapt to the huge volume of mortgages as the market heated up over the past two years.

Last fall, Zillow cut 2,000 jobs, about 25% of its workforce at the time, as it shut down a foray into an ibuying business and reoriented to its core business.