Dark clouds are forming over Canada’s economy, but most households are blissfully unaware… for now. A new research note from BMO Capital Markets warns that young adults are facing the “gruesome twosome”—soaring unemployment and unaffordable housing. The combination has created an environment on par with the country’s worst recessions. It’s an issue largely slipping under the radar but considering how fast the wheels are falling off the economy, it may be time to start paying attention.
Canada Went From A Labor “Shortage” To Soaring Unemployment In Just A Few Months
Canadian unemployment is rising at an unusually rapid pace—but almost exclusively for young adults. The youth (15-24 years old) unemployment rate has climbed to 14.5% in August. Outside of the recent pandemic, this is the highest level in over a decade. It hasn’t attracted much attention in most households, since the labor surplus has yet to hit core-aged workers. However, it’s hard to not see the issue reaching them soon.
“[The youth unemployment rate is]… 2.7 times the jobless rate for those aged 25-54, one of the highest ratios on record,” warns Douglas Porter, chief economist at BMO.
Further emphasizing the gap and how quickly it formed, Porter adds “The youth rate has certainly been higher in the past—see the early 1980s, much of the 1990s, and even in 2009/10—but it’s an abrupt shift from the tight market of much of the past decade.”
Canada’s young adults went from hearing a labor shortage narrative to facing an unemployment rate not seen outside of the worst recessions, in just a matter of months.
Canada’s Young Adults Still Face One of The Worst Housing Markets Ever
Young adults facing a bad job market is a worrying trend by itself, but it’s a much bigger problem with the existing housing woes. Pre-pandemic housing was already out of reach in major cities, but now that lack of affordability is a country-wide trend. It’s hard to pay for shelter when the cost rises significantly faster than income. It’s next to impossible when there’s no jobs to earn income in the first place.
Canada’s housing affordability has only made a minor improvement with falling prices and interest rates. “It [housing affordability] did improve slightly again in Q2, according to the BoC’s measure, but is still very weak,” Porter notes.
According to the bank, affordability was slightly worse during the early 1980s and early 1990s. However, this combination of factors creates an environment not seen outside of the most serious recessions.
“… for young people, it’s a) now tough to find a job, and then—presumably later on—b) tough to find an affordable place to live. And the combination of the two is about as challenging as the early 80s and/or early 90s,” warns Porter.
Back in the 80s and 90s, the affordability issues were resolved relatively fast with home prices crashing. Just a few years were out of whack, followed by a long period of affordability. For example, Toronto real estate took 22 years to return to the inflation-adjusted peak for home prices in the early 90s.
A correction and stagnation of that magnitude currently isn’t expected from experts. Especially with the BoC embracing unconventional monetary policies like quantitative ease, flooding investors with cheap credit to bolster demand and prop up prices, when households face a weak economy. It doesn’t always work, but many expect this to be the case in the near-term.
Think the issue is unfortunate but not your problem? That might be a big mistake. Experts warn that young adults experiencing a lack of financial stability impacts everything from demographic collapse to the country’s financial stability. The latter of which even the country’s largest bank has warned about.
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