TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
9 a6 }, i& {1 \' gfrom 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
4 V# ~6 D5 ?+ Ffundamentals by approximately 9% nationwide. This
  Y" i$ n7 c2 }overpricing compelled a level of residential construction
! s5 T; v$ h" I& i1 o# tthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
By “overpricing” we mean that prices detached from
8 w4 [. s7 l, ctheir fundamentals, as witnessed by a steep erosion of
  w! s, n3 n) l' _& X& }/ }7 C' jaffordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
1 i) a# H' F4 i" f, y' T# gto fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
/ c8 i% \0 @' d  q0 kwhere homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
) S" S2 S+ A& ~$ Hthere is evidence of both types, we contend that Canada’s
4 {! n  Q! y+ Q. _“overbuilding” was mainly of the first type, where
homebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
( V* Z( ]( T( M0 r+ D% Ithe construction of too many new homes over the boom
means a deepened slump. This overbuilding will likely weigh
1 `$ w1 j& \. q; P$ ron markets over the next few years. Even as Canada recovers
1 W1 t% m" U9 v: Z9 tfrom the cyclical downturn, house price growth will
! V) T5 k' f  j2 c3 T, K& Q0 eremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
" b; w( Y; J$ v: }to persist over 2009 to 2011. We anticipate that nationwide
" C0 z' H% [) _: Aresidential construction will fall further to around
; v/ @) f( @4 ?2 b9 h125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
% ^7 B6 Z/ J- ]3 o$ vTo quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
$ T2 v; i. G4 P# G( gprovince. Affordability is the key concept behind home
1 p" }& |9 z+ bvalues since house prices should track incomes over the
) D! x5 X* k* [: Ilong-run. Since homebuilders build to meet demand, we
3 L, S* K1 z$ p  x3 Kregard housing prices and household formation as the drivers
2 V5 E" _: w; `; Pof residential construction.
( l& s; l  m/ ~8 A) D% V. h+ \% B+ ATo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
% d# T& ?) J/ b8 i$ _: K$ m2 m; boptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
" v& V8 Y0 `% T$ A! Dunits were being absorbed, homebuyers simply bought too
8 S5 b; a" n9 `; S" t, Nmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
buyers’ territory. Homebuilding in the Atlantic provinces
( E2 Q- S8 `6 ~1 S5 u# }) g. ?+ Vhas been relatively balanced but, while not plagued by structural
7 p: v7 u1 [( v9 oweakness, will be singed by the downturn nonetheless.
/ F6 ~2 J; u5 @/ t$ l+ q1 XQuébec shows signs of strain – especially given the
1 W% j# j$ ]2 Bstrange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
/ X* {" H1 Q3 _+ [2 e, _* grates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
+ D1 ?# t: H; t0 T( o, \limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
; U( E9 b( Q( G8 R* Z9 G) f+ Lconstruction mean that record numbers of condos will
7 D) r1 a9 T) k. s& u: h5 ]6 rreach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
" J5 j- @; j8 }! t7 s5 n6 H; Tspike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
% y4 l( J. I0 }1 _anticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
; v' Q: N4 M, gyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
# e: E& t" l! n8 qOVERPRICED AND OVERBUILT: CANADIAN HOUSING
5 b3 k4 s  q9 s3 B$ W* z1 r1 GMARKET RETURNS TO FUNDAMENTALS
* x# _) M1 ]* D3 p7 ~Grant Bishop, Economist
+ X: {; S% Q2 g- l416-982-8063
Pascal Gauthier, Economist
416-944-5730

0 j" ]& f  N+ k5 |http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙