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
$ h* d" W3 ~" t6 |$ ufundamentals by approximately 9% nationwide. This
% r$ y4 X$ v. m5 E2 V9 `# ?! C+ Ooverpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
9 J6 B5 E1 s) E6 T8 O$ Gthree years.
By “overpricing” we mean that prices detached from
) W  W# T7 ~- N# O5 t; Utheir fundamentals, as witnessed by a steep erosion of
3 k5 i7 \' h- b+ s3 d% aaffordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
8 @: a% R8 j) G3 ?$ G6 ywhere 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
) G# R! l% a9 ?4 ?“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,
the construction of too many new homes over the boom
means a deepened slump. This overbuilding will likely weigh
5 t- ^, b, ?5 V- f+ l2 ^on markets over the next few years. Even as Canada recovers
from the cyclical downturn, house price growth will
remain choppy and new residential construction will be
' E6 ]  _4 e5 f  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
5 D; L" u0 e$ Mresidential construction will fall further to around
2 V7 f( f! J4 n& _0 v125,000 starts over 2009 with a trough around 115,000 units
4 a% b7 d) V" M/ ?/ kin the fourth quarter.
! w/ r5 \1 f  U, z; p, a- uTo quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
' T3 A: ~& w" M2 W8 k$ @2 yfundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
7 o7 x. X: g- a( v6 Zvalues since house prices should track incomes over the
+ o: l2 V/ i! \! E! V9 X/ j- rlong-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
7 D( m9 b+ Z) Y: o2 h" N( Aof residential construction.
' X! V6 A$ W. M9 v' O4 F: C8 YTo examine the degree of overbuilding, we employ a
( B5 j$ F3 G" J“counter-factual,” asking what level of residential construction
# ]& x3 B4 c9 [would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
3 s4 H$ \0 B2 s$ S& b  {' o4 ufundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
3 R" {$ N8 L: b) `! m+ Fmany houses at prices that exceeded fundamentals.
1 I5 r- D2 ]* [. ]2 u* K" ORegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
% k& O" n( ?  i3 |population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
1 t) D: v; L' Xvery time that the resale market has swung into strong
buyers’ territory. Homebuilding in the Atlantic provinces
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
strange accumulation of unabsorbed multiples on l’Île de
, W" V  i: u* q7 \Montréal – but recent building has been relatively balanced,
- C% P2 a3 j* P+ n' l& ngiven the province’s history of under-building and low ownership
) ^1 H. R2 C2 w7 Lrates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
! x7 G6 H, F3 b8 `$ V; g$ Ulimited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
! j9 h( Z" j" i) H' {* ^, \high levels of apartment-style units presently under
9 P. T1 e# ~( ~/ `1 _  Z( K8 X) Wconstruction mean that record numbers of condos will
+ Z; v% {% x: R& h2 J0 qreach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
4 }0 J* A5 B/ F3 L+ T1 Manticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
. k9 A" ?0 I1 O8 Xwill alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
3 z* O  S0 ~* p; ?% gGrant Bishop, Economist
416-982-8063
6 i2 \+ D$ g* W2 MPascal Gauthier, Economist
3 M. I3 |. k) d- z# j416-944-5730

5 E( r+ T, ]; b1 c* U. P" ohttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙