How Increased Unemployment Rate Affected The Toronto Real Estate Market?

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The number of unemployed Canadians reached an all-time high in May 2020. In the last fifty years, the country only recorded such a high rate in 1976. However, it surged to 13.5% last year. Thanks to the coronavirus outbreak that claimed many lives, shut down businesses, and made many people lose their jobs. One week after the imposed lockdown, more than 500,000 people filed for employment insurance. Compared to 27,000 filings in the same period in 2019, that was a whopping 1,900% increase. As a result, the Toronto real estate market suffered housing surpluses as people lost confidence in the sector.

Massive Drop In Real Estate Demand

In May 2020, almost 1.2 million Ontario citizens became temporarily jobless. Since you earn when you work, staying at home meant no pay. At this point, you prioritize survival above everything else. Moreover, you streamline your lifestyle and expenses to the essential. Such was the case for millions of Torontonians in mid-2020. Acquiring properties dropped from the list of several people. They needed an alternative source of income and sought for strategies to survive their new reality.

Besides, those with a mortgage could not pay their monthly dues, while some lost their buildings to foreclosure. According to Condo Mapper, the unemployment rate stood at 5.5% in January. By May, it rose by almost 250%. Demand dropped drastically, and some experts posited the market might crash. Reducing the prices of properties was a temporary Band-Aid with minimal relief. Although normalcy is returning to the Toronto real estate market, experts predict a further decline in the coming months.

Spike In The Rate Of Furloughed Employment

During the pandemic, several people became unemployed for a temporary period. Meanwhile, the actual numbers are still unknown. One of the hardest hit was the Aviation industry. Air Canada retrenched over 21,000 employees in less than two weeks. Similarly, United Airlines Holdings fired over 3,000 workers immediately, with more expected to follow. Other affected airline companies include Porter Airlines, WestJet Holding Ltd., Boeing Co., and Sunwing Airlines.

Furthermore, the retail industry had its fair share of layoffs. Leon Furniture cutback about half of its workforce. Reitmans Canada Ltd. placed almost 5,000 of its store employees in furloughed employment. Also, Gap Inc. retired over 80,000 store workers temporarily. Industrial companies had similar stories. General Motors, Groupe Renault, Bombardier, and CAE Inc. are examples of affected automobile enterprises. 

The Condo Mapper abstract showed that the Canada Emergency Response Benefit (CERB) initiative exhausted its coffers, with millions of Canadians still suffering. Moreover, the government relaxed the lockdown, and employees in the non-essential services could resume their jobs.

The Effects of Net Job Loss on the Toronto Real Estate Market

As we mentioned earlier, the number of lost jobs during this period totaled 1.2 million. In subsequent months, the government allowed movement and some people regained their employment. Below is the analysis of gained positions.

  • June – 378,000
  • July – 151,000
  • August – 246,000
  • September – 168,000

Cumulatively, Ontario regained 943,000 jobs.

If you subtract the number of lost jobs from gained jobs, you have 340,000 net loss. On a macro scale, it indicates a further decline in the demand for properties. As Condo Mapper noted, fewer people will purchase new homes, leading to a real estate surplus. Prices of properties would likely drop, too.

For every 1% increment in the unemployment population, demand for properties plunges, and prices by 4%, says Brendan LaCerda, an astute economist at Moody Analytics. If the unemployment rate increases by 5% over the coming months, prices of properties might drop by 20%. 

From the graph above, the unemployment rate stood at 5.65% before coronavirus hit. During the pandemic, it rose to 10.6%. At that time, the 3% increment led to a whopping 12% drop in real estate prices, using the LaCerda approach. However, with a steady increase in job gains, the value of properties will appreciate.

Governmental Initiatives to Ease Bottlenecks In The Toronto Real Estate Market

Defer Monthly Mortgage Payment

Financial institutions cooperated with the government to launch series of deferral programs for the citizens. According to Equifax Canada, at least three million citizens benefitted from the scheme. Some credit partners extended this deferral to credit cards. Moreover, it ensured that deferring payments would not affect the credit score of beneficiaries.

Payment of the Canada Emergency Response Benefit (CERB)

The government ensured that everyone who lost their job due to the pandemic got adequate compensation via the CERB program. Besides, citizens above 15 years who qualified for Employment Insurance benefited from the scheme.

Canada Emergency Rent Subsidy (CERS)

The government supported businesses and charity organizations to lift their financial burdens concerning rents. If you qualify, you can get up to 65% support on your rent. Moreover, if your business got a direct order to remain locked, you can apply for another 25% rental support.

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