The 'positive' effect of weak employment

Toronto, Ontario - Mar 19, 2020: Sign on a restaurant door during covid 19 outbreak as per state of emergency order of Ontario government all restaurants must be closed until further notice.
Elena Berd / Shutterstock

Toronto, Ontario - Mar 19, 2020: Sign on a restaurant door during covid 19 outbreak as per state of emergency order of Ontario government all restaurants must be closed until further notice.
Elena Berd / Shutterstock

April’s employment numbers were disappointing, even with the third wave of COVID pounding the economy.

Canada lost 207,000 jobs in April, about 32,000 more than had been projected. The losses pushed the nation's unemployment rate from 7.8% to 8.1%.

That illustrates how the economy isn’t in the clear just yet. There’s no telling if or when the people who lost their jobs in April will be fully employed again. And each lost job eats into the consumer spending that’ll be required to get the economy back to normal.

Because the weak jobs report reduced the yield on government bonds, it took pressure off both five-year fixed and variable mortgage rates. Both have remained largely unchanged in the days since the most recent employment figures were released.

Rates are "likely to remain at current levels for at least the short term," writes mortgage planner David Larock, in a post on the real estate website Move Smartly.

With the housing market as unforgiving as it is, it’s understandable if you quietly welcome any development, even shaky employment numbers, that might keep mortgage rates low and increase your buying power just a little bit.

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Employment's diminishing role in real estate prices

Unemployment rate under the glass
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It used to be that employment had even more influence over Canada's housing market. For decades, home prices and mortgage rates were tied relatively closely to the country's, or at least the provinces’, economic well-being.

Recessions have typically resulted in decreased demand, soft prices and falling rates. That was certainly the case during Canada’s last major recession, which lasted from 1989 until 1996 and saw mortgage rates drop sharply. (Though today’s rates are basically nothing compared to the sunken rates of the earlier era.)

The Ontario market was especially roughed up by that downturn: Residential properties lost up to 25% of their value. The same thing happened, to a lesser extent, to properties in Alberta and Newfoundland when oil values fell off a cliff toward the end of 2014.

That’s how real estate usually works: Employment sparks income, income drives demand, demand jolts prices. When employment falls, the other components are expected to weaken.

At one time you could gauge a market’s viability by looking at its employment situation. When companies that paid well were moving to an area and going on hiring sprees, you could generally bet on a population boost, stronger demand and faster appreciation of your property.

But over the last 12 months, Canada’s unemployment rate has averaged a stiff 9.6% — and Canadians have been buying homes at a rate unlike anything seen before, putting pressure on prices.

Then, what's behind the boom?

Wooden houses with yellow arrows up. housing boom, property market growing, high demand for real estate, house prices rising concept
SewCream / Shutterstock

Remember when people used to ask: "Is now a good time to buy real estate?"

The question implied that the state of the market, and the fundamentals supporting it, were important factors in determining when to make a purchase. That isn't the case any longer.

The guiding principle today is "now or never." There are several reasons the housing picture has gotten so frenzied:

  • Low interest rates, which have made homebuying more affordable, also have brought buyers stampeding to the market.
  • Buyers who sold their homes in major cities have used their massive windfalls to bid up prices for properties in smaller communities, where locals can’t compete.
  • Whenever sales momentum starts building, panic — call it "FOMO" if you like — sets in, and people feel if they don’t stretch themselves to buy now, they’ll never be able to afford a house again.

You’ll notice that not one of those points stems from an economic fundamental that’s trending upward. The market is being fuelled by emotion and the hope that homes we’re overpaying for now will be worth more than we pay for them. In that sense, we’ve become a nation of speculators.

That's not to suggest that if you recently bought a home, you might have made a mistake. You were just playing the game. But if housing prices are divorced from what’s happening in the economy and don’t respond to the forces that have traditionally kept them in check, how do we ever gain control of them?

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Smart strategies for today's buyers

Bank employee gives documents for signature to a Caucasian man and his dark-skinned wife. Specialist in lending and financial assistance for young families indicates the place of signature.
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Canada’s housing market may be running on blind faith, but that doesn’t mean you should go into a sale with your eyes closed.

Find a mortgage broker you can trust and make sure any home you might potentially buy is something you'll be able to afford, no matter what happens to the economy. Have a straightforward talk with your broker about where home prices and mortgage rates could go, and work out plans for the various scenarios.

When a real estate professional just wants to shoehorn you into a mortgage by telling you, "Prices will keep going up. Don’t worry about it," that may be right. But you can probably find someone to work with who will take your unique financial situation a little more seriously.

Like lots of first-time buyers, you might be considering an investment property as a means of getting into the market. Just remember that speculating is a very risky strategy for beginners.

When you’re trying to find a property that will have enduring appeal to renters, you need to take several factors into account, including location, population growth, education facilities and, of course, the employment situation.

Hook yourself up with a local real estate agent who has experience with investor-buyers. The agent should answer your questions accurately and quickly, and help make sure you pay the right price for your property — or at least overpay in a way that works.


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Clayton Jarvis is a mortgage reporter at Prior to joining the team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.

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