TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
1 j5 O. v: s2 z# qfrom 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
; \/ k! L3 n7 T- m3 Afundamentals by approximately 9% nationwide. This
: ?0 x- W- R$ {- N5 j* V7 g' _overpricing compelled a level of residential construction
- h; R% b, |' w' Ethat 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
0 m( M1 h. Q! a; k7 k' Y4 F: G' btheir fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
8 H. Z& E: z: E/ P: rboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
9 n: B3 C/ Q9 O) t0 N2 K# ?3 y& n. hWe consider “overbuilding” of two forms: “demanddriven”
' U7 M6 D2 x3 A1 _( m% Kwhere homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
% j& T3 H* A) L, o2 F; o/ K& d. uthere 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
9 i7 K8 D* e2 hthat is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
the construction of too many new homes over the boom
% Z/ Q$ |3 S7 H4 Fmeans a deepened slump. This overbuilding will likely weigh
- ~4 P8 Z/ t5 N; I+ U" F( U7 J# Fon markets over the next few years. Even as Canada recovers
3 m6 x# k) N) ~9 u2 ?: `& ifrom the cyclical downturn, house price growth will
) K& x* f* X. B! }remain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
+ d! ]4 g6 j& A; ~2 M/ x( ris now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
: [4 e. l/ t8 O: ~. v- Y4 wresidential 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,
we first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
& q/ s* _( t4 ~$ vvalues 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
of residential construction.
To examine the degree of overbuilding, we employ a
( K/ x( _$ }$ _  T0 l“counter-factual,” asking what level of residential construction
) f6 Y: B8 F3 Q, p4 \would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
' Q" \2 ?  a8 y0 wunits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
) Q; K5 T6 D0 |) H, Pwhere housing demand will further contract under waning
- g9 R- f5 x* Y  w( D9 D7 H3 V" Opopulation 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
  r  O- f) g! j, q, g! V- Chas been relatively balanced but, while not plagued by structural
" H" O/ G/ T- ^" k+ yweakness, will be singed by the downturn nonetheless.
+ m2 o0 S3 b$ k/ F* G1 g3 mQuébec shows signs of strain – especially given the
/ @( G$ @( S0 k. mstrange accumulation of unabsorbed multiples on l’Île de
9 ~, ~5 k8 `$ Q7 E( w- HMontréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
3 ]0 D) ^( e" B4 s8 z- `0 C* Gcyclical downturn, the degree of structural weakness appears
* C2 E, ~; q- J" F# R; dlimited – with the important exception of the Toronto
7 l: o7 Y% @1 _/ B' Fcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
% K- [- F* M* |1 f: y! R% N, rreach completion during 2009. If absorption rates fall, as
; Z1 r( c3 n( f9 F# R1 xcyclical factors would indicate, condo inventories could
: N& q: K' V' x' J( [6 q  jspike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
1 ^" S* \" Y8 t" o6 vinter-provincial and international migration over the coming
years, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
/ g* J4 k2 B) u" ~! q0 \( sMARKET RETURNS TO FUNDAMENTALS
5 f9 V! @! w" m+ @4 AGrant Bishop, Economist
  x+ P6 A  s/ ~8 a416-982-8063
; A7 J: Q5 D, p: LPascal Gauthier, Economist
- z! ?( a2 e% T& h' p  ~/ n416-944-5730
' v4 d& o: R% v  |* s% J# I
8 C6 |7 A: V7 \) c$ y1 t3 _7 o9 Chttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙