Canada’s largest real estate markets should prepare for a very different economy over the next few years. Statistics Canada (Stat Can) data shows unemployment in Toronto, Vancouver, and Montreal made big climbs in March. As bad as the loss is, it’s muted by a rapid decline in the participation rate. This means the loss of employment (and productivity that comes with it) is worse than headlines suggest. That would also mean the recovery will be slower than most anticipate.
Unemployment and Participation Rates
As bad as the rising unemployment rates are, that’s only a part of the story being told. The unemployment rate is the percentage of people participating in the workforce. If you’re retired, or just gave up on looking for a job – you aren’t considered unemployed. Instead, you’re removed from participation. Looking solely at unemployment tends to overstate the health of the economy. In a downturn or in turbulent times, you have to look at the participation rate as well to get a full picture.
The participation rate drops for a lot of reasons, but large drops are always a bad thing. Sometimes the drop is due to an aging population. Sometimes it’s because people give up on the formal economy. Abrupt declines during downturns are typically a combination of the two – with a lot of older people opting for early retirement. The impact is the same – lost economic output, and a decline in the production of goods and services. This tends to lengthen the duration of a downturn, and makes a recovery more difficult.
Toronto Hasn’t Seen A Participation Rate This Low In Decades
Greater Toronto unemployment is rising, but falling participation is obscuring the damage. The unemployment rate was reported at 7.8% for March, up 11.42% from a year before. This is the highest level since August 2016 – not all that long ago. It’s also lower than Montreal and Vancouver. Obviously, not a big issue – right? Well…
Toronto CMA Unemployment Rate
The unadjusted rate of unemployment in the Toronto CMA.
Source: Stat Can, Better Dwelling.
The participation rate has fallen to unchartered territory for the city. Participation dropped to just 62.8% of the population, down 5.14% from last year. Toronto hasn’t seen such a low rate since at least 2001, when Stat Can started using this methodology. It likely goes back much further though. The rising unemployment is bad, but the drop in participation helps to obscure how bad the issue in the city has really become.
Toronto Employment Participation Rate
The unadjusted rate of employment participation in Toronto CMA.
Source: Stat Can, Better Dwelling.
Vancouver’s Notoriously Low Unemployment Rate Is No More
Greater Vancouver’s unemployment rate also shot higher. The region’s rate came in at 7.6% in March, up 68.89% from a year before. This is the highest rate of unemployment the city has seen since April 2011. In fact, the city typically has one of the lowest urban unemployment rates in Canada.
Vancouver CMA Unemployment Rate
The unadjusted rate of unemployment in the Vancouver CMA.
Source: Stat Can, Better Dwelling.
Vancouver has seen this low rate of participation before, but not for very long. The participation rate dropped to 63.2% in March, down 7.47% from a year before. This is the lowest it has been since April 2015, but only in that month. Other than that April, it hasn’t been this low for the past 20 years, and likely much longer.
Vancouver Employment Participation Rate
The unadjusted rate of employment participation in Vancouver CMA.
Source: Stat Can, Better Dwelling.
Montreal Has The Highest Unemployment Rate of The Cities
Montreal has the highest rate of unemployment of the three big markets. The rate of unemployment reached 9.1% in March, up 51.67% from last year. It’s the largest climb, but we only need to go back to February 2016 to see it reach this high. Like the other two cities, the participation rate is offsetting how bad the change to output actually is.
Montreal CMA Unemployment Rate
The unadjusted rate of unemployment in the Montreal CMA.
Source: Stat Can, Better Dwelling.
Montreal’s employment participation rate dropped to a multi-year low. The rate fell to 63.5% in March, down 3.9% from last year. The decline doesn’t sound like much, but that takes it to a low that hasn’t been recorded. In the 20 years of data Stat Can has available using this methodology, it’s never been this low.
Montreal Employment Participation Rate
The unadjusted rate of employment participation in Montreal CMA.
Source: Stat Can, Better Dwelling.
The rise in the unemployment rate is challenging, before lost participation is factored in. Once participation is included, things are actually a little worse than forecasted. Even getting back to the unemployment rate we previously enjoyed, doesn’t mean the economy will be at that point. A substantial drop in participation during the Great Recession is one of the reasons the US felt such a big shock, and took so long to recover.
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Any idea how this impacts a recovery timeline in your forecast? Presumably, smaller labor + higher population dependency (higher taxes) = much slower recovery, credit borrowing, etc.
26 million now have lost their jobs in the US, and still counting…wow need to take a breath.
These are just temporary due to social distancing…..once everything is back to normal, people will start to go back to work….unemployment will come down…
Literally the opposite of what the data point is showing. These are people exiting the workforce, like the thousands of people paid at WestJet to take early retirement.
Canada was economy was teetering before covid 19, a slight wind would have knocked it over…. but what came was a hurricane!
Canada’s housing market has been climbing for over 24 years, since the 90’s…….. why do people think it will only fall for 3 months?
But as people have told me numerous times before march …….. “your crazy, we are not in a bubble”…
Lets see if they were right….
peoples homes doubled in price in last 5 years yet 54% of all mortgage holders don’t have 2 months worth of equity in there homes, they needed deferrals….hah!
I think that gives me an idea of where the market is presently… and where its headed…… hint : Its not up!
Good analysis.
Yes, the market is ripe for a serious haircut. Some experts are calling for as a much as a 2% drop in home prices.
One of the biggest risk firms in the world just told institutional clients Canadian prices could drop up to 35%, depending on how long the lockdown lasts.
I’m sure the experts you’re quoting from a sales brokerage know much better. Go with them.
Let me guess… you are one of them!
This unemployment is structural in nature. Many small businesses won’t make it and there will be leaner times and higher taxes ahead that will curb hiring. We haven’t even dealt with the recession/depression aspect of this once the virus part has abated. Wishful thinking on your part.
lol
I just don’t understand how an economy based primarily on the housing market can survive as long as Canada’s has. The country’s oil industry was declining even before the pandemic, so what seems to be the last remaining pillar of this economy is housing.
But the cost of a home in Canada compared to the median wage is out of wack. So the other thing required to keep the economy going is an influx of foreigners and foreign investment in real estate.
That source of investment is temporarily slowed due to the pandemic, but how many people can you import in the long run if that is what is necessary to keep defying economic gravity?