AI Layoffs Are Spiking—Could They Be the Housing Market’s Next Shock Wave?

Artificial intelligence was supposed to supercharge the economy, and in many ways, it has. Wall Street’s bull market has largely been fueled by AI optimism, buoying stock portfolios, bond markets, and 401(k) performance alike.

Some investors are even starting to see returns, with the so-called Magnificent Seven (the largest and most influential tech-focused companies) expected to generate 23% net income growth for the third quarter.

Yet as 2025 winds down, the price of AI enthusiasm is starting to hit the job market. Tech companies, once the engine of U.S. job growth, are now leading a wave of layoffs, eliminating more than 141,000 positions so far this year, according to Challenger, Gray & Christmas. Of those, more than 31,000 were tied directly to AI-related restructuring.

For anyone who felt a shiver run down their spine the first time they tried a generative AI tool, or closely followed headlines of AI companies whose mission is to “take your job,” the news may have read like the first installment of a major turning point for the housing market and economy as a whole: If some of the highest earners are losing their jobs to automation, who can afford homes?

But Jake Krimmel, senior economist at Realtor.com®, cautions against overstating the risk.

“I do not expect tech layoffs to impact the housing market as a whole: 141,000 tech job cuts year to date is such a tiny drop in the bucket for a workforce with 160 million jobs,” he says. “However, the tech mini-recession could slow down house price growth in a few tech-heavy markets, like San Jose, San Francisco, and Seattle.”

But lived experience, like losing a job, has a funny way of turning up in the economic data. In many cases, it can take months or even a full year before the full effects can be seen and understood.

“What remains to be seen is whether these AI-induced tech layoffs are the result of companies restructuring or whether these jobs are going away for good,” he adds. “If the latter, then we could expect a more sustained impact on house prices in certain metros.”

So, how could AI layoffs hit the housing market? We took a deep dive.

The layoff landscape

Job cuts surged 175% in October compared with a year earlier, to the highest October total since 2003, when the economy was still recovering from the dot-com bust and early 2000s recession, according to the Challenger, Gray & Christmas report. Today, U.S. employers have announced more than 1 million layoffs so far in 2025 across all industries, led by technology firms navigating both cost pressures and a rapid pivot toward artificial intelligence.

“October’s pace of job cutting was much higher than average for the month,” said Andy Challenger, workplace expert and chief revenue officer at Challenger, Gray & Christmas, in a press release announcing the report. “Some industries are correcting after the hiring boom of the [COVID-19] pandemic, but this comes as AI adoption, softening consumer and corporate spending, and rising costs drive belt-tightening and hiring freezes. Those laid off now are finding it harder to quickly secure new roles, which could further loosen the labor market.”

Still, the broader employment picture appears to be cooling but not collapsing. In the absence of official government data during the ongoing shutdown, alternative indicators such as the ADP report and the Chicago Fed’s Labor Market Index point to a moderate slowdown: Private payrolls still grew by 42,000 in October, and unemployment edged only slightly higher to 4.36%. 

Together, these signals suggest that while layoffs are rising in headline-grabbing sectors like tech, overall labor demand remains comparatively steady.

"The alternative data points to moderation, but the lack of an official ‘source of truth’ makes it hard to know how much weight to assign to any one signal. I would take the Challenger data with a grain of salt. The official data provides a fuller picture of the full labor market,” Krimmel adds.

For housing, that nuance matters. A few concentrated rounds of white-collar layoffs are hardly impactful enough to move the national market on their own. Still, if AI-related restructuring persists or broadens, it could weigh on prices and confidence in the very metros where tech salaries have long propped them up.

Is AI the new 'dot-com' moment?

If the recent surge in AI-related layoffs seems familiar, it’s because the economy has seen this before.

Following the dot-com bubble, the housing market hit pause. The U.S. homeownership rate, which had been rising steadily through the 1990s, flatlined in 2001 and briefly dipped before resuming its climb to a historic high of 69.4% by 2004, according to U.S. Census Bureau data compiled by the Federal Reserve Bank of St. Louis.

By contrast, the 2008 financial crisis triggered a more prolonged slide—from 67.9% in 2008 to 63.1% by 2015. It's an important difference, and that proves that not all downturns are created equal. When job losses are concentrated in high-paying industries, the fallout tends to appear first in markets propped up by those occupations, not in national averages.

Today’s dynamic carries similar hallmarks. Many firms spent the past three years racing to staff up during the pandemic tech boom. Now, as AI automation replaces or reshapes roles in engineering, marketing, and operations, the sector is correcting again. 

“Like in 2003, a disruptive technology is changing the landscape,” said Challenger. “At a time when job creation is at its lowest point in years, the optics of announcing layoffs in the fourth quarter are particularly unfavorable.”

Where tech layoffs could leave a mark

Historically, higher earners and white-collar workers have been the backbone of homeownership. Research from the Board of Governors of the Federal Reserve System shows that by the 1960s, top earners were nearly 20% more likely to own homes than those at the bottom of the income scale. 

While the Board of Governors’ analysis ends in the 1960s, a robust body of research shows that the wealth gap has only accelerated as homeownership costs have risen.

Over time, that rising income inequality has deepened the divide between knowledge-economy workers and everyone else. The Carpenter’s Index from the American Enterprise Institute offers a stark measure of that shift.

In 2012, the earliest available year of data, a typical blue-collar worker could afford roughly 37% of entry-level homes in what are now major tech hubs like San Francisco and Raleigh, NC. Today, that share has shrunk to 7% to 8% in those same markets—and to just 7.5% in Austin, TX, where home prices skyrocketed during the pandemic boom.

That widening gap has pushed the median age of first-time buyers to a record 40 years old, with a median household income topping $94,000.

As layoffs ripple through high-income sectors, some of the very markets that benefited most from tech’s rise are showing early signs of cooling. Austin, for example, now sits firmly in buyer’s market territory with 7.3 months of inventory—well above the four- to six-month range that signals balance.

Still, Krimmel cautions against drawing a direct line between AI and softening prices.

“That shift is driven by other forces and certainly pre-dates AI-related job cuts. These markets were slowing down already for some time, with ballooning inventory and fewer home sales in many cases,” he says. “Those larger trends are driven by powerful macro forces like years of 6%-plus mortgage rates, slower job growth overall—not just recent layoffs—and low consumer sentiment stemming from tariff and economic policy uncertainty.”

So, while layoffs may accelerate local slowdowns, they’re landing in markets already under pressure.

What this means for homeowners, buyers, and sellers

For now, the housing market seems to be mostly insulated from the impacts of AI layoffs, more shaken by years of high mortgage rates, undersupply, and waning buyer confidence. Even in the face of these pressures, the broader labor and housing markets remain intact—at least for the time being.

“Widespread and sustained job cuts are a key recession indicator and accelerator, which would absolutely affect the housing market right away,” says Krimmel. “But more often, labor market shocks are concentrated in certain sectors, and unless they have wider knock-on effects for the macroeconomy or financial system, are less likely to show up in top-line housing data at all.”

The more immediate risk is psychological: If tech’s cooling momentum dampens confidence among higher-income earners, it could slow demand in the very markets that helped drive post-pandemic price growth.

Much like past tech corrections, today’s AI-driven reshuffling could end up as a pause rather than a plunge. Whether it stays that way depends on what happens next: Will displaced workers be absorbed into new industries—or has AI begun redrawing the white-collar economy itself?

Until those answers emerge, both the Fed and the housing market are likely to keep doing the same thing: moving carefully and waiting for clearer data to see where the next shock wave lands.