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
  N! @  K/ K3 v. D/ Wfundamentals by approximately 9% nationwide. This
, q! M/ J& f2 C. o7 G3 moverpricing compelled a level of residential construction
: ~6 E! q# Y8 Dthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
' ^( W7 j# r5 W. W7 Nthree years.
. o1 c' f9 n: l' c) A: {2 ~$ @By “overpricing” we mean that prices detached from
: ^% y4 A; z6 U$ @their fundamentals, as witnessed by a steep erosion of
. u, W2 z" z$ L; z( s: \1 xaffordability. 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”
where homebuyers buy up too many houses and
7 j0 b, O( B$ ~that this demand cannot be sustained; and “supply-driven”
+ S- _6 I0 J# d/ x- Uwhere builders accumulate excessive inventories. Although
5 g% |: O0 @6 r( kthere 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.
% F5 F+ {7 ]- z* D! x2 ]$ [While most markets won’t face U.S.-style overhangs,
+ m2 ^) e' e8 ^the construction of too many new homes over the boom
- H1 N. e6 h) q' [, x3 zmeans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
from the cyclical downturn, house price growth will
, @% U% ]' o8 @9 \: L1 Xremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
5 ~8 l: X. N7 c' x8 mto persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
( M/ h  e, i  S: m  [3 {& T6 s/ K: q- l' K125,000 starts over 2009 with a trough around 115,000 units
, i/ e- p& j% v; |; X$ a" k  k9 m1 Yin the fourth quarter.
To quantify the degree of overpricing and overbuilding,
2 @- e3 u7 K9 l$ R+ nwe first develop an empirical model, based on long-run
  R( c# k1 Y  z& Ifundamentals of house prices and housing starts in each
8 o7 L- |' @7 s! z; S& ]province. Affordability is the key concept behind home
& ^9 n5 o2 o( j) s, o$ U/ Uvalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
0 ^8 e% V8 H/ Tregard housing prices and household formation as the drivers
of residential construction.
2 ?% M" U0 m% k+ d6 r# ^To examine the degree of overbuilding, we employ a
' r5 O2 t% J9 t7 M5 @“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
3 o; V" D: H, `/ n, Koptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
# M9 ~. C4 s4 [* i1 ^& A; Munits were being absorbed, homebuyers simply bought too
* L7 v) ~8 J1 Y9 p4 Xmany houses at prices that exceeded fundamentals.
* \* p( J4 q/ N8 l) z3 Z+ m! t4 WRegionally, we see the greatest strains on the Prairies,
& x6 o+ X0 r, q+ w* s$ swhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
3 [8 x+ F: N& J3 ~& oalready witnessing surges in their unsold new homes at the
  X8 s4 g5 M' O3 C, a2 `% {- U' mvery time that the resale market has swung into strong
buyers’ territory. Homebuilding in the Atlantic provinces
" Z' ?8 `# ]; _% b, ehas 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
Montréal – but recent building has been relatively balanced,
! q) b* [- D2 a6 R8 b- }- U2 igiven the province’s history of under-building and low ownership
( j) S( m5 f4 I" p7 g2 Z  Xrates. While Ontario homebuilding will reel from a
. O6 A7 v/ g# Ncyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
" W: b; F# m6 t7 Ehigh levels of apartment-style units presently under
construction mean that record numbers of condos will
; |# A& x/ H& \+ G0 sreach completion during 2009. If absorption rates fall, as
2 e  p: _; Y7 \7 S2 J% O/ qcyclical factors would indicate, condo inventories could
8 J; c5 Y. t$ u8 o/ O" o' s" yspike severely – particularly in Vancouver. However, while
7 C4 V1 O$ l5 C2 \6 Y. L/ `residential construction in B.C. will definitely droop, we
+ o6 C% {: l9 N7 O- Zanticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
2 m+ @) ^1 s" g3 L/ @years, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
; s0 i, w) Y, J$ O9 HOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
416-982-8063
' y' Z# n% C& U: z/ ePascal Gauthier, Economist
416-944-5730

http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙