Jobs and housing – I can’t think of two economic subjects Canadians are more passionate about. This week, differing news on both topics is leaving many wondering what the next 12 to 18 months will look like and if their jobs and home values are safe.
On one hand, statistics are showing housing activity is up since last year and the pace of full time jobs being added is good. On the other we are hearing Canada is in a housing bubble with a possible 30 per cent reduction coming for home prices, all while unemployment rises.
Can’t keep it straight? Here’s our breakdown of the good and the bad news.
Canada’s Housing Market: The Good
A new survey by Bloomberg and Nanos showed Canadians are the most optimistic about housing prices since 2008 – and they have good reason. The latest statistics from the Canadian Real Estate Association (CREA) show prices beat expectations in June and are up almost 7 per cent since last year, with housing activity up more than 11 per cent. CREA says the Canadians housing market remains in balanced territory, with some experts, like economists at TD, predicting home prices could still rise 6 per cent more by the end of 2014.
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Canada’s Housing Market: The Bad
However, in the midst of this positive news comes two separate reports from the U.S. advising investors to stay away from Canadian real estate; they even go as far as comparing the current market to pre-economic meltdown conditions in the U.S.
Global credit rating agency Fitch finds the Canadian housing market is overvalued by as much as 20 per cent, blaming low interest rates and rising debt levels. “We believe high household debt relative to disposable income has made the market more susceptible to market stresses like unemployment or interest rate increases,” the rating agency said.
The second report, out by Chicago-based investment firm Morningstar, states a housing price correction is “inevitable” in the next five years, with prices to fall as much as 30 per cent.
Canada’s Employment Numbers: The Good
Statistics Canada reports the unemployment rate edged up in June, but only by a slight 0.1 per cent. In fact, employment has actually increased for middle-aged Canadians; among those 55 and older, 60,000 jobs were introduced last month. This has lowered the unemployment rate for this group by 0.4 percentage points to 5.8 per cent. This is an improvement from 2013, when jobs decreased by 5.1 per cent, mainly due to population aging, according to Stats Can.
The construction industry is also booming, with more than 33,000 full-time jobs created in June; however, these were offset by the loss of 43,000 part-time jobs. In short: less people are working, but those who are are working more hours.
Canada’s Employment Numbers: The Bad
Statistics Canada reports that 9,400 jobs were lost in June, bumping the unemployment rate to 7.1 per cent (up from 7.0). This is a disappointment to economists who were expecting a slight increase.
The manufacturing industry was particularly hard hit with 13,600 jobs cut, lowering the rate to a record low not seen in 1976.
Over the past year, only 72,000 jobs have been created in Canada, with the majority in Alberta. According to StatsCan, “This was the lowest year-over-year growth rate since February 2010, when year-over-year employment growth resumed following the 2008-2009 labour market downturn.” Employment numbers also declined in business, building and other support services as well as agriculture.
Is the Economic Future Friendly?
This news may paint a dreary picture for those hunting in the housing or job markets, but the basic rules still apply:
- If you’re buying a house make sure you can afford to pay the mortgage at a rate 2 per cent higher that what the bank is offering you.
- If you’re working and worried about losing your job, start building an emergency fund that would cover six months of your living expenses if you became unemployed.
Do you think Canada’s job or housing markets will get better or worse over time? Let us know in a comment!