REALTORS® know that all real estate is local and that job growth is crucial to the prospects for any local housing market.
Is job growth on the rise and drawing more people to the area? If so, then home prices will rise until supply catches up to higher demand and/or affordability moves far enough out of reach to where the pool of qualified buyers is in balance with supply.
Are layoffs outstripping hiring and causing the number of qualified home buyers to shrink? If that trend persists long enough to cause financial stress among mortgage holders, then home prices are likely to recede as listings swell while the number of buyers shrinks.
Consider two of Canada’s higher profile housing markets and how they are affected by job trends.
Greater Vancouver ranks high on the list of Canada’s priciest housing markets. For that reason, it tends to be quite sensitive to changes in employment levels and its impact on consumer confidence. In 2008, jobs and confidence were on the decline even before the economic recession hit. As a result, home prices there dropped. As the recession lifted and hiring resumed, consumer confidence, home buyer demand and home prices rebounded.
By contrast, Calgary saw a dramatic increase in hiring and home prices in the run up to the recession as oil prices surged. When oil prices dropped sharply during the recession, employment dropped and took consumer confidence with it. Home prices followed suit, but they rebounded once hiring and consumer confidence regained traction.
The recent drop in oil prices has dented consumer confidence in Calgary. In reaction to job market uncertainty, many home buyers have moved to the sidelines while taking a “wait and see” mindset there. As a result, sales activity has dropped. What until recently was a seller’s market is quickly tilting toward becoming a buyer’s market.
What happens next for home prices in Calgary depends on a number of factors. When will the fog lift regarding the outlook for oil prices? To what extent will that uncertainty affect the job market there? Will the recent rise in home listings be sustained? Nobody really knows with any certainty. That said, unless sellers are motivated to drop their prices, they won’t. In the meantime, sales will remain weakened by a stalemate between buyers and sellers.
To sum up, job trends hold the key to local real estate market prospects. For that reason and for the benefit of REALTORS®, CREA recently expanded the number of Boards and Associations for which information about local employment trends is available. If you want to know how employment trends are shaping up in your housing market, check out www.creastats.ca, which is updated each month.