Job cuts from subprime: 18,000 and counting
Mortgage lenders are slashing payrolls now, but labor problems will spread, warn economists.
NEW YORK (CNNMoney.com) -- In another sign of how dire the subprime mess has become, mortgage lenders shed about 18,000 jobs this month, according to one estimate.
But while the crisis has been largely contained to mortgage lenders and financial services firms, some economists see subprime-related labor trouble spreading to other parts of the economy in the months ahead.
The number of casualties has already been significant. The collapse of New York-based American Home Mortgage Investment Corp. earlier this month resulted in the loss of nearly 7,000 jobs. On Wednesday, Accredited Home Lenders (up $0.14 to $6.24, Charts) said it would slash more than half the jobs in its mortgage unit.
Job cuts among mortgage and subprime lending institutions for August are up an eye-popping 6,300 percent from last year, according to a study published this week by outplacement firm Challenger Gray & Christmas.
Last week, Bear Stearns (up $2.55 to $117.30, Charts, Fortune 500) laid off 240 employees in its lending unit. Lehman Brothers (up $0.83 to $59.37, Charts, Fortune 500) said Wednesday it is shutting down its subprime mortgage BNC Mortgage unit, which would result in the loss of 1,200 jobs. Lehman's job cuts are on top of the 18,000 calculated by Challenger.
And in a sign of what's to come, the number of mortgage brokers, which act as sales agents for lenders, is expected to shrink by a third by the end of 2008, according to the residential lending market research firm Wholesale Access Mortgage Research and Consulting.
While the subprime impact on an already weakened housing market may be hard to gauge, economists such as Zoltan Pozsar, senior economist at Moody's Economy.com, guess that the next job losses will come from housing-related industries.
"We are about to settle into lower levels of sales and housing starts for a considerable level of time and that will hurt jobs of appraisers, real estate brokers," he said.
On the retail level, home improvement chain Home Depot (down $0.54 to $34.23, Charts, Fortune 500) blamed the housing-market softness and turmoil in the subprime market for its drop in second-quarter profits.
Outside of the housing sector, General Motors (up $0.42 to $31.75, Charts, Fortune 500) announced Wednesday it would cut back on overtime hours in a number of plants as high gas prices and a weak housing market have softened demand for its full-size pickup trucks and SUVs.
Problems could spread to other retail segments, warns John Silvia, chief economist with Wachovia. Consumers faced with high interest rate mortgages are likely to cut back on spending. Without customers, retailers could be forced to trim their headcount.
In some instances, he estimates that the subprime hiccup will take as much as two years for the broader economy and labor market to absorb its effects.
"To the extent that you are taking about a correction in the housing market - that's got to have an impact on retail employment over the next year or two."