Myth Busted: McJobs in the recession

I think we have established that simple supply and demand drives real estate prices. So the key to my business is to understand what drives supply and demand.

On the demand side, one of the key drivers is jobs and incomes.

Lets take a look at the latest research from people who don't care if you buy real estate: CIBC.

CIBC World Markets measures employment quality through its employment quality index (EQI). The EQI measures the distribution of distribution of part-time vs. full-time jobs; self-employment vs. paid employment; and the compensation ranking of full-time paid employment jobs in more than 100 industry groups. Basically it measures if people are leaving high paying jobs to go into McDonald's (McJobs) or starting a new network marketing business.

From the latest EQI stats, despite employment has decreased 2.1% (or 356,000 jobs) the EQI has decreased 0.2%.This is quite different from past recessions where the EQI falls faster than the jobs.

From the report:

During the 1991 recession, the 3% drop in overall employment coincided with a 7.7% drop in the quality of employment.

So what is happening?

Most of the job losses have been in low paying jobs (gasoline station operators, real estate, textile and accommodation services). These are basically jobs by younger people who are less likely able to buy real estate (which won't drive down prices significantly).

So what is going on regionally?
Western Canada EQI is falling faster than the rest of the country because the high paying jobs in construction and in the Oil/Gas industry has fallen dramatically. This is perfect for people seeking opportunities in Alberta because these are the sectors poised to gain the most in 2010 and beyond.

Ontario EQI has fallen only a limited degree (despite losing high paying manufacturing jobs). Quebec and Atlantic Canada (Halifax real estate is kicking butt).

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.