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?
Anyway.
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.
17 comments:
Hat tip to the Pope for the link to the Pastrick story in the Sun.
Pastrick has the pieces of the puzzle, most notably his previous comments on the declining spend on major project inventory. One of these days he will put 2 and 2 together but I like to be optimistic.
In one of your previous posts you showed what the unemployment situation would be without the construction/RE boom. It is not just construction that is getting hit now. Other industries, a long time out of phase in their business cycles, are now terrifically in phase.
Yes indeedy - hoocoodanode.
2009 is going to be very bleak indeed and 2010 doesn't have much chance of being much better in BC either. Perhaps by the end of 2010 we will see an improvement in the economy and employement picture. The next 18 months are going to take a lot of people by surprise.
Construction, finance, real estate, and retail jobs are all going to get absolutely hammered. Double digit unemployment is assured.
Interestingly enough it is likely that the forestry and mining sectors will lead us out of this as the world economy comes back ahead of the BC economy and demand for those things rises out of the pit it's in now. There are also some fairly major projects around the province that could start providing some big employment numbers in the latter part of 2010.
Poor Helmut.
Although, I've always wondered what it's like to have a job where you can be wrong all the time and still get paid, much less not be fired.
Wow. The labour force CONTRACTED by 17.4K while unemployment increased by 17.8K. This is partly because termination contracts will reduce employment but not immediately increase unemployment. Definitely a leading indicator of future rising unemployment.
Also 68K drop in full time employment but only 35K drop in employment. Can someone say "reduced hours"?
I enjoy your blog very much.
Hubby is in one of the canary-in-a-coalmine industries, hit by the downturn in new project planning & construction already in August 08. So far 50% of staff have been laid off, remaining staff have agreed to less hours (= less pay), and other same-sector companies are having similar contractions. Work has simply dried up. The sector is getting hammered right now. Our personal spending has tightened up considerably, and retailer friends are suffering very badly. Main Street is in trouble, even if the politicos don't get it yet.
How can this not affect people's ability to afford their current (or future mortgages) if they are already over-extended and unemployed to boot?! How can this not affect the Metro housing market and BC economy and our 'fundamentals' in general? My questions is; how long and how far, and I agree with Mohican's assessment re: timeline.
On a (un)related note, house across the street (YVR westside) went up for sale in late Fall 08 for $1.2m (assessed value). Aggressive marketing, open houses every weekend (both days) and... nothing. Price drops to $949K by late Jan.09 in time for Chinese New Year - nothing. For Sale sign is now gone and For Rent is in its place... Needs to drop at least 40% more to afford it as a FTHB.
Thanks for the easy to understand numbers, charts and analysis.
Question. Telus moved its call center to the Phillipines; 300 were laid off, because they were either part-timers or contractual,no benefits and no EI. So are these 300 included in the unemployment statistics.
CGI moved its operation and call center to India. Recently Dell moved its call center from India to US, because no one can understand the thick accent. Rather than cutting down excessive bonuses and expenses of top executives, these companies nickle and dime their workers until their customers abandon them and they lost the market share.
When will people clue in that economists' forecasts ALWAYS understate things? Always.
Most "economists" are not objective scientists but rather PR shills. PR is the most disposable function of boom times; I wish people -- MSM and the blogosphere -- would dispose of economist forecasts for the forseeable future.
What are good ways to perserve your downpayment cash (if you don't have to dip into it to survive that is)? My worst scenario is there is a snap back to inflation after all the stimulus is done but they can't raise interest rates without causing further catastrophe.
It almost seems like land might be your best bet assuming you can buy something mortgage free. Then at least you have somewhere to live.
Not too keen on stocks because if companies aren't making money stocks are unlikely to go up. Gold is a commodity and the traditional hedge against inflation but it's not a no brainer to me as to why.
My general sense is that it IS that bad this time with a smaller and smaller chance of a Y2K bug ending.
"So are these 300 included in the unemployment statistics. "
Typically if you get laid off, you are not employed at the company but you aren't necessarily actively looking for work (you either receive severance or are taking time off). You are therefore not part of the workforce until you are either employed or actively looking for work (or on temporary layoff) -- neither employed nor unemployed.
These people are accounted for in the labour force survey by there being a decrease in the labour force.
Before I begin, I'll state it out front, I'm not an Economist. Wait, that might come across as bragging...
Regardless of what/who I am, I still can't imagine an inflationary scenario unwinding in the near to medium future. Unless someone finds a way to reset the clock, wipe out peoples memories and set everyones networth to +$20k, people are done spending.
The majority of people are spooked and tapped out. The rest of the naive and ignorant are only months away from the same. Nothing the government does will be able to get them to spend like drunken sailor again for another decade.
People are reaquainting themselves with the fact that if you want something, you have to work for it.
So all that said? If you have money, wait. If you think you like to gamble, there are plenty of leveraged and non-leveraged ETFs you can play. If you have balls of neutron stars, hit the options markets.
And as far as the doom-and-gloomers are concerned, we'll get through it. Unfortunately for you.
Reductimat, we may see some consumer price inflation due to a weak CAD and monetary expansion. Almost all significant consumer prices are determined externally to BC.
But the price of anything that depends on the ability of BC consumers to borrow and spend is going nowhere, and housing is right at the front of that.
And yet. the Baltic Dry Index just turned around! You can see the graph in the Flirting With Depression thread. Cheers.
I own and operate ATMs. Thus being made to wait for hours on long distance help is frustrating. One local call centre guy asked me for a job. Now I am thinking of switching my business network to a service provider with a local backup.
Every time I come across a forecast from Pastrick, at first, I get confused, then angry and then I laugh.
Tick Tock, Tick Tock
An indicator such as baltic dry bouncing off a low is encouraging, except when you look at just how absurdly low that low was, and think that the rise off it was solely due to technical forces. The Baltic Dry simply cannot be that low, as it makes no sense to operate a ship at those level. The owner would lose less money by leaving the ship at anchor. At the shipping rates the index low indicates, you can't even pay for fuel.
So I'm waiting for more than that to think about a recovery. But then again, I'm not drowning here, so I can ignore random straws.
Good post, VHB. Home ownership as borrowed demand from the future is one of the least talked about important issues in Vancouver real estate. Ironically, it's those who bought during the boom that may find themselves "priced out" -- as hostages to inflated, long-term mortgages.
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