TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
0 m8 v* Z( I6 `2 m$ Ufrom 2002 to 2008, unsustainable price increases drove
/ n# }9 A  v6 _3 W: ?/ Yunsustainable levels of building. Our view is that house
1 ~" Z. c0 u/ f( ?, G* ?1 l8 g5 }prices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
1 Y8 |+ o0 m. b" M# }) d  Sthree years.
By “overpricing” we mean that prices detached from
  I/ X; x% T$ p. k! @their fundamentals, as witnessed by a steep erosion of
" o4 n( v3 l4 j+ Jaffordability. The current unwinding of house prices reflects
8 ~; K7 t0 W9 h: j1 U  S9 Aboth a cyclical downturn and a return of house prices
" \! Q$ m% N  ?) ~' {  Kto fundamentally justified levels.
. l- c0 M; {6 J: A' L* H+ [We consider “overbuilding” of two forms: “demanddriven”
/ k; E1 h: @* Fwhere homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
there is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
homebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
6 n  h0 j7 @& s& ~# X# u7 ?While most markets won’t face U.S.-style overhangs,
the 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
( P2 e: |8 R! m- P5 D2 G' Ffrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
8 ?" w- I( s& E  z3 W* U: Sdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
2 z4 K4 h( n6 q2 d( X) q- i5 ?residential construction will fall further to around
/ f, q9 P4 Z2 x* A; I% `2 a! v125,000 starts over 2009 with a trough around 115,000 units
  s, L4 G$ c8 B) ~' K' yin the fourth quarter.
8 v& l. U* O* c" F/ W' m( j$ BTo quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
. H  l5 N! k$ i* R- ]fundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
1 o. l9 X( t' c0 t  N( X3 Wvalues since house prices should track incomes over the
! ?2 E3 v. x; {+ v# Y# p1 L+ Qlong-run. Since homebuilders build to meet demand, we
9 J! ~$ t. S# A7 n! t# Cregard housing prices and household formation as the drivers
of residential construction.
  B) V9 U! b9 s0 }! n/ k* P) x& MTo examine the degree of overbuilding, we employ a
, U0 @9 Z' O: T0 o- X1 f“counter-factual,” asking what level of residential construction
# s- X4 q0 W8 q4 X( }+ awould have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
% X- w! y1 E/ {  jfundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
  K7 D  L  A2 p7 fpopulation inflows. Saskatoon, Calgary and Edmonton are
, [/ b) U7 x* _5 D( Q' aalready witnessing surges in their unsold new homes at the
: {  ]5 }" s* N! W0 P. Yvery time that the resale market has swung into strong
& P0 u. u' P: x9 P9 k1 |! Kbuyers’ territory. Homebuilding in the Atlantic provinces
has been relatively balanced but, while not plagued by structural
( t) Q1 ~0 [! a. O5 R3 o' Qweakness, will be singed by the downturn nonetheless.
2 n' X9 ^5 B" f* [1 z* `% }" fQuébec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
  C3 m) V' c% [0 w! yMontréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
& `; d& a( W. Z( a5 S1 |: q) brates. While Ontario homebuilding will reel from a
2 b+ b) m+ P' W1 v% D* r3 Pcyclical downturn, the degree of structural weakness appears
% L4 w: k) p: A7 ^$ D& i2 V0 Flimited – with the important exception of the Toronto
* L+ g( a) t4 u5 z6 M# M: e' xcondo market. Both in Toronto and Vancouver, historically
- X% |  @5 U- H2 I2 ~' f. x! I# hhigh levels of apartment-style units presently under
construction mean that record numbers of condos will
5 V: ?9 s0 P# hreach completion during 2009. If absorption rates fall, as
$ D. f* h6 {- e& E6 ?cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
; O2 a6 v* P9 M7 O# R5 [8 y( Yresidential 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
  U9 \4 j9 G/ h$ `- E# v7 e5 R/ g* yyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
* B3 S  J! s  @% \# wMARKET RETURNS TO FUNDAMENTALS
* [3 x+ n- a/ W: \Grant Bishop, Economist
416-982-8063
$ Q( M$ S1 [1 u/ b& @! jPascal Gauthier, Economist
6 Y* x# g7 z/ C3 c) t7 F# X1 b. K416-944-5730
* g1 ?6 B; j1 E
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙