Employment Diversity and Effect on Job Loss during the Recession

Thanks to Don Campbell for keying me on this fundamental.

When the Conference Board of Canada publishes its quarterly economic outlook for Canadian cities we take a particular interest in how they rate the diversity in the amount of industry groups for the town.

Diversity is a strong indicator for how resilient the town will be in the future when shocks to the local economy happen.

Resilience, rhymes with Brilliance, is defined as “the power to return to the original form after being bent or stretched; elasticity; buoyancy; ability to recover readily from illness or adversity

During the current recession the oil and gas sector in Alberta had overall job losses as the price of oil faltered and investment in Oil sands was postponed. Edmonton and Calgary have weathered the storm of job losses (in fact they gained 0.2% and 0.4% new jobs respectively) in part because the cities were diverse outside of oil and gas.

Toronto with its massive job market (almost as big as the combined labor force of Alberta and Saskatchewan) is an example of great resiliency. The number of people employed in Toronto has decreased 2.0% vs. the 2.3% loss for the entire province of Ontario (Ottawa has a less diverse economy and lost 4.8% --more jobs than the provincial average).

Toronto has survived the Nortel crash and it has survived the NAFTA transition away from manufacturing in the past...and will survive the global financial meltdown and the auto sector mess today.

As for the anomalies in Quebec and Vancouver...who cares!

I won't even begin to explain Montreal and Quebec City because I would never invest their anyway....one of the most anti-landlord places in North America and Vancouver is currently the real estate bubble capital of Canada because the homes are not affordable.

In closing:

Why should the diversity the local economy is a factor to look at when looking at investing in real estate in a town?

Diversity = More jobs created in good times and less jobs lost in bad times = higher population growth in good times and less population loss in bad times = more stable real estate investments.

Updated Economic Information Source List

Royal Lepage Price Index
AOL real estate
Zillow
Standard and Poors
CMHC
Statistics Canada
Canadian Real Estate Association and their particular local boards
Alberta Finance
City of Edmonton
Canadian Association of Petroleum Producers
Alberta Energy
Federal Reserve Bank and their particular state representatives
Moody's ($300/report)
IMF (International Monetary Fund)
World Bank
Canadian Bankers Association
Trends Research Institute ($185/year)
Urban Futures Institute
University of Toronto Innovation Systems Research Network
Centre for Urban Studies at the University of Toronto
Economic Cycle Research Institute
Urbanation
Centre For Spatial Economics
Genworth Canada
Conference Board of Canada ($5,225/year)
RBC Economics
Scotia Economics
BMO Capital Markets
TD Economics
CIBC World Markets

University Towns Are Great Environments for Business and Are Still Prospering

Interesting article from ABC money news that you can take a look at here.


States that university towns are not facing the "squeeze" the recession.


Here's their stats:

• Provo, Utah, where the university is located, has added jobs to its economy. Over the last year, there's been a 2.97 percent rise in jobs in Provo; the national unemployment rate has now hit 8.9 percent.
• There are also business booms in college towns like College Station, Texas (home to Texas A&M and up 2.06 percent); Baton Rouge, La. (up 2.16 percent), which Louisiana State calls home; and Durham, N.C. (up 2.49 percent), where Duke University have been major drivers of economic activity.

Why?

Research universities tend to be great environments for business, as they're flush with cheap, highly talented labor (recent grads), and the massive research and development budgets universities have. Plenty of the world's top companies, including Dell, Cisco Systems and Google, began in university settings.

So how does this effect the real estate market?

Going to Zillow (why can't we have this site in Canada) we can take a look:

Provo Real Estate

The Zindex for Provo shows that prices have fallen 8.8% from last year and about 15% off the peak. In comparison, according the same ZINDEX, America has a whole has fallen 14.2% and 21.8% from the peak.

Have a telescopic view and MAKE MONEY

To make money in real estate...in fact any investment vehicle, you must have a long term view. Look what the numbers tell you about the future.


How do we determine a future in real estate: we study fundamentals from people who don't care if I buy real estate or not.

So here's a sample of what I look at:




From this Graph, I want to pick the winner so lets analyze this data compiled from the Alberta Governement.

Compared to all of Canada, Ontario, and BC. Alberta's population increased the most, it lost the least amount of jobs, and its wages increased the most.

Based on these facts, I'm going to do a a thought exercise:

If population of the province increases won't the demand for housing increase?

Won't it make sense that there will be more renters? Could this not lower vacancy rates and drive up the rents?

In addition, 2-3 years from now won't there be more people available to buy homes? Won't this drive demand for homes higher than any other province?

And if the wages are increasing and the number of jobs are stable won't that mean that more people can afford housing?


Ok, let's look at GDP

In 2008 Alberta was near the top in the country in percentage increase in GDP and according to TD bank, this year Alberta will be near the bottom in GDP in terms of change in GDP and in 2010 will be back near the top.

What does this tell us: a temporary downturn where you can invest on sale.

As an aside, TD expects BC will lead the country for GDP growth in 2010. Why? Let's think: where is the location of the biggest sporting event in the world? umm Vancouver. Wouldn't having millions of people visiting and the construction that goes along with the Olympics have a huge effect on their economy?

Of course.

Study the numbers, see what they are telling you and take action. If you get stuck in the moment without a long term point of view your chasing shadows and will lose.

OIL PRICES SET TO SPIKE AGAIN?

Oil and gas prices over the years have become a huge expense. More than ever people are watching world oil prices and more specifically the prices that they pay at the pump.

I came across an article in the Economist that predicts that

“The precipitous fall in oil prices over the past year may just be paving the way for another spike"

See Article Here.


After reading the article, I have to say I agree with some of the key points.

First, at the end of the day, world oil prices are a function of supply and demand. We know that currently demand has been on the decline because of the global recession. However, over time, world economies will start to grow again and invariably increase their consumption of oil. When this happens, prices will start to rise again.

The oil future market is already pricing in a increase in oil price (just look at the recent run up in oil prices; from $35/barrel to $60/barrel.

Secondly, oil companies across the world have been cutting their production and exploration activities (given the lower prices for their product). Now this is fine because demand for oil is much lower, but this level of supply will not be sufficient when world economic activity picks up. So what will happen? Prices will increase substantially.

Therefore, oil rich countries such as Saudi Arabia and Canada will benefit tremendously - just look back at the oil boom in Alberta over the past 4 years. The oil boom in Alberta occurred because the oil price was rising, oil profits were increasing and oil companies were investing billions of dollars to extract oil in the province ($100-$150 billion dollars in Alberta alone!)

History always repeats itself and so it looks like the stage is being set for another oil boom.

So this might be a time to get back into oil and invest into regions that will benefit from higher oil prices.


Ajayan Sritharan
Real Experts

Do you want facts or sugar coating?

Here are sample of my sources no particular order:


CMHC
Statistics Canada
Canadian Real Estate Association and their particular local boards
Alberta Finance
City of Edmonton
Canadian Association of Petroleum Producers
Alberta Energy
Federal Reserve Bank and their particular state representatives
Moody's ($300/report)
IMF (International Monetary Fund)
World Bank
Canadian Bankers Association
Trends Research Institute ($185/year)
Urban Futures Institute
University of Toronto Innovation Systems Research Network
Centre for Urban Studies at the University of Toronto
Economic Cycle Research Institute
Urbanation
Centre For Spatial Economics
Genworth
Conference Board of Canada ($5,225/year)
RBC Economics
Scotia Economics
BMO Capital Markets
TD Economics
CIBC World Markets

Be contrarian: Be a real estate Hero

I often get asked why are you investing in Alberta when you are from Toronto? It's an excellent question. I'm not going to say the GTA is a great place to invest into and hope the property will do well.

Simply put: I never HOPE. I always make expectations based on fundamentals.

I can invest anywhere in North America, I choose Edmonton because the fundamentals show growth long term.

I know my goal is to make money for my partners, in order to achieve that goal I have to do things that are uncomfortable.

It can be hard sometimes pushing through. I have to get past the dominant thinking from my friends and colleagues, many who are rightfully scared, to achieve these goals.


When things go as planned, It may look like luck from the outside...It requires constant diligence, education and action.

So what does this mean for you? study the fundamentals especially from people who present facts and don't care if you buy real estate or not.