TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
from 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
+ Z0 F- O6 v! c9 j. R0 ?6 jfundamentals 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
% r; C3 ?# e) X" @three years.
4 x, a2 }0 z# {  r1 LBy “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
$ b; f: Q; M3 F' tboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
/ A3 g" R5 c8 Z, H3 b; c) o0 Fwhere homebuyers buy up too many houses and
4 G/ ]. U, E' b, w& b, Nthat this demand cannot be sustained; and “supply-driven”
* h# B+ n. T5 W$ h$ hwhere builders accumulate excessive inventories. Although
there is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
7 M3 ~6 Y9 d3 ?2 N  K8 W! _8 Ohomebuyers pushed homebuilding to an unsustainable pitch
4 r; Y- c& q5 _: |6 xthat is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
+ g2 k; ?2 ~/ n' T- g+ N+ g$ ethe construction of too many new homes over the boom
6 {( f! _  ~. P' ~) j& Emeans a deepened slump. This overbuilding will likely weigh
6 c6 B7 n$ ]/ n9 z4 y+ P4 oon markets over the next few years. Even as Canada recovers
* F/ Q9 l! R: A0 Zfrom the cyclical downturn, house price growth will
/ c9 _$ a# b+ x# |" a# x% w9 Sremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
5 v  e( _9 e1 T; i: l; dis now undershooting fundamentals and we expect this
! I0 F- h: T- }: i! _. Tto persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
  K" H8 i, V7 d  K. }$ ^in the fourth quarter.
, G3 t- p3 v5 g4 k! t6 W3 V2 D$ @To quantify the degree of overpricing and overbuilding,
2 b7 z6 E" f( _, F  k% v$ W  Ewe first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
% _& O* x1 _8 T( A( h( d$ L1 }province. Affordability is the key concept behind home
( e0 u2 Q% d% \  ivalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
8 J6 J/ q6 }% ^0 y3 ^regard housing prices and household formation as the drivers
of residential construction.
To examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
% I+ Q/ G$ j2 t; {) ]would have occurred if housing had been priced
) N  r/ X1 [! ]' [. F0 coptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
: d7 K2 k- F4 A2 `many houses at prices that exceeded fundamentals.
7 U5 H3 r* a+ L, wRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
+ E2 U1 W' u& j1 `& o& a) ipopulation inflows. Saskatoon, Calgary and Edmonton are
% a/ ?9 d3 y" ~1 j3 [% M; {7 ualready 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
! ~7 Z, r, `  g0 ^# W8 {has been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
) y+ E. D+ K5 d6 X; M. x$ ystrange accumulation of unabsorbed multiples on l’Île de
" {: L  e5 \( s/ e" J2 zMontréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
2 H2 q0 Q9 J0 f; O4 e, Arates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
. H5 y- c* |1 c" p/ j9 c3 Plimited – with the important exception of the Toronto
4 q: d- u' F! s+ tcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
3 d3 O& [. r, o6 o$ A/ I4 i& Areach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
  `0 X3 d3 L8 Vresidential 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
, S9 o* `' Q# {years, which, along with improvements in affordability,
0 |" |/ d6 Z: j" R2 [% k+ Rwill alleviate some of the pressure from overbuilding.
+ k1 A3 p. Y2 I4 [$ z) |4 F. Y* hOVERPRICED AND OVERBUILT: CANADIAN HOUSING
8 U% ^3 A2 K% l7 d5 ]5 \MARKET RETURNS TO FUNDAMENTALS
3 f  u2 J& j* x: u: r5 @/ \8 KGrant Bishop, Economist
$ T% c4 k# ?- P, v7 Q2 N! M416-982-8063
Pascal Gauthier, Economist
416-944-5730

. `, m1 b' {5 q" d2 p, F4 zhttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙