British Columbia's economy will lose 42,500 jobs this year and another 6,500 in 2010, Central 1 Credit Union chief economist Helmut Pastrick forecasted this week. If his dire prediction comes true, it will be the first time the province will have seen successive years of declining employment in more than a quarter century. But keep in mind that those are reductions of just under two per cent and 0.3 per cent respectively, hardly the wholesale losses of about five per cent B.C. saw during the recession of '82, and Pastrick expects employment to recover to 2008 levels by 2011. In the meantime, however, Central 1 expects B.C.'s unemployment rate to rise from 4.5 per cent last year to 6.7 per cent in 2009, and climb even further to 7.5 per cent next year.Well, we now have the January numbers and we're already down 35,000 jobs. Only 7,500 more to go to reach Helmut's 2009 prediction. Or, more likely, Mr. Pastrick will have to revise his prediction.
Maybe I shouldn't pick on him too much. He's not alone in being rosy with the forecast. Then again, some people did mention a long time ago that our labour market boom was based on construction, and that this was not likely to be sustainable once the construction boom stopped.
I'm sure that the newspapers will tell us that such a change in employment came out of left field; 'no one' predicted it. Hoocoodanode?
The labour market in BC took a very sharp worse turn in January. Here are the pictures.
The unemployment rate shot up to 6.1%. The proportion of people with jobs fell under 62%.
This can be seen in clearer context by looking at this long run picture:
You might notice that the other times we've seen such sharp movements have been in deep recessions. One might therefore predict that we are starting a serious recession here. But time will tell for sure.
What I do know is this. If the labour market continues to spiral in this direction, the housing market is seriously toast.
When the bubble started to burst in Spring 2008 in the midst of a strong economy, it burst mostly because there was a psychological change--people stopped wanting to pay the inflated prices because they didn't have confidence that they could find a greater fool to whom to unload their property in the future. We've seen 15% or so come off prices, but the main effect really has been that properties have just sat around not getting sold. Aside from a few flips gone bad, there hasn't been a lot of urgency on the sell side. So it didn't sell in 2008--just rent it or try again in 2009.
What will be different going forward is this. As unemployment approaches double digits in BC (we'll get there shortly after the Olympics--if not earlier), there will be thousands of people who cannot make their mortgage payments on their primary residence--not to mention their inability to feed the monthly bleed from their condo 'investments.' These properties will be thrown back on the market first by themselves, and later by banks as foreclosures.
When will this happen? When people lose their job, it takes some time before they get irreversibly behind on their bills. It then takes some time for the bank to foreclose and get the thing on the market. So, the 'have to sells' are not going to seriously start hitting the market until late 2009. But in 2010, this will be a dominant part of the housing picture.
So, let's add this up. We have record new housing inventory on the way. We will have a cascade of 'have to sell' people driven by job losses. On the demand side, speculators are out of the market. As well, home ownership rates are at record level, which means we have borrowed a large part of demand from the future--how many 22 year olds were buying condos pre-boom? How many rushed to 'get in' before they were 'priced out'? And that's just the local stuff--not to mention the impact of a worldwide (including Asia) economic meltdown. This sums to one thing: 2009-10 are going to provide a tremendous amount of pain for those who are overexposed to Vancouver real estate.