TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
6 C# ~( |! s9 ]$ lfrom 2002 to 2008, unsustainable price increases drove
unsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
1 G, a+ h, D) g9 J& v/ Jfundamentals by approximately 9% nationwide. This
& m5 n: ^' o2 Ooverpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
% g- h* ~8 G: E& t( }% KBy “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
" X& @! A- N6 ?6 Z% T" K% Bboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
1 b+ ?# U4 S8 R" k& |* w- ]; twhere builders accumulate excessive inventories. Although
5 ^) X4 \; b, d9 ~there is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
% ^5 q  _6 V, |& C3 k6 l  ^homebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
8 w9 r4 A) v! ?: S7 ^1 ]While most markets won’t face U.S.-style overhangs,
& w* O0 J# Q4 l$ k/ ?: X1 f! C: |+ P& Nthe construction of too many new homes over the boom
means a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
; h& U: ~& i6 g8 o5 ]3 pfrom the cyclical downturn, house price growth will
2 U# j, g/ n6 }* ~  O( Kremain choppy and new residential construction will be
" J, X4 n2 \) T& p: V8 j7 ]' \dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
) s1 A0 B$ |2 R: S; u4 S! j/ ?9 b* \% iresidential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
To quantify the degree of overpricing and overbuilding,
& S" A# F' k6 y6 H7 ^, o+ C. [we first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
$ k! Z# z6 F/ \+ J  J! W) eprovince. Affordability is the key concept behind home
% w* @/ b7 j) K4 ivalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
0 Y3 A/ x" G1 {/ tof residential construction.
" Y; |( v9 M0 S- jTo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
- o" l. j# i2 v$ m: b2 x' f; H# @Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
& Y/ b4 }+ n% G1 K* _" Z* fpopulation inflows. Saskatoon, Calgary and Edmonton are
) S" Q7 k/ O( E) y+ D3 n$ ^+ talready witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
1 D+ x4 L+ e+ g- x9 S9 abuyers’ territory. Homebuilding in the Atlantic provinces
0 ~% J  m- i% p- X+ g& t- _has been relatively balanced but, while not plagued by structural
0 i* L" O! z" R9 _5 t1 x9 R# @  _! a$ bweakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
% ?# t! Y! W3 ~, R, j  e  J2 P: estrange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
% F8 w) S' M& I5 Z, ~given the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
" j" U$ g* {* p8 {% tlimited – with the important exception of the Toronto
$ F/ \. D) x1 y4 S6 T. ycondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
9 y) @! w* @9 F* h  oconstruction mean that record numbers of condos will
& O9 j' M: s" n! a, Q# g4 o  N# Qreach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
' A0 d: O& `7 g8 Presidential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
* X$ f# w6 C9 s& q/ d( H$ G& vwill alleviate some of the pressure from overbuilding.
# u1 y4 i! y2 Y, O  hOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
, q/ u7 O7 D% G  i2 {Grant Bishop, Economist
416-982-8063
+ e4 C+ ~7 s$ U% Q: Y% n# e& fPascal Gauthier, Economist
416-944-5730

http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙