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
/ k9 F- t5 R, c1 z" i5 j% d: s, Cprices 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
  M$ X# i( c* Zthree years.
By “overpricing” we mean that prices detached from
; F/ k& ?% x  a. m; \their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
+ \6 W/ K1 Q2 k& Z1 f  }. Jto fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
' Q7 G6 w# [% P/ y, g$ U- Awhere homebuyers buy up too many houses and
" d/ }& S9 n$ \2 u9 xthat this demand cannot be sustained; and “supply-driven”
# G+ D& h9 j/ o8 q8 K, Jwhere builders accumulate excessive inventories. Although
9 O- c" E5 G+ @: p. ^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
6 a* B/ c' W5 n' Ethat 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
- N" I6 H4 I9 a) p: Rmeans 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
: B9 V3 E" q5 \  Uremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
& Z1 Y) a- s7 C% ~5 B7 G  Lto persist over 2009 to 2011. We anticipate that nationwide
8 k/ B1 t0 V1 g6 u8 Y. a+ k7 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
' o& \& A) S- _+ q" Pfundamentals of house prices and housing starts in each
" U' Y# g) u: J3 y. r+ U- U" o& yprovince. Affordability is the key concept behind home
1 Z$ f' e- Q. V1 ^/ S3 N% pvalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
* a1 M0 _! }9 R( a3 T; Kregard housing prices and household formation as the drivers
: X- ~- z. {( k; Z% q  q4 N' Qof residential construction.
To examine the degree of overbuilding, we employ a
" ~% ^' y4 a) M- I“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
! h/ d/ x  G7 D6 Punits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
: x' e5 w3 ]8 \4 G/ [) U# V  cRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
5 q3 F! M2 T. f3 m5 k, z8 h; Vpopulation inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
; P' \9 Z5 C" [3 A/ H; w  I# }very 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
" ?- l) G7 M! m8 C4 j7 g7 Q) a: H1 jstrange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
( n* ~  Q! N1 K0 `& _% f6 D1 s, wgiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
& C5 ~' W3 d  E' m& U  P6 @5 p" i/ lcyclical downturn, the degree of structural weakness appears
/ k  S" m$ I) l3 `& T* |  w% s( Zlimited – with the important exception of the Toronto
# F, G9 B! ?( S! ?5 Z7 l$ ncondo market. Both in Toronto and Vancouver, historically
( l! a9 r- M# H0 h9 D! {# s( rhigh levels of apartment-style units presently under
construction mean that record numbers of condos will
* {' `& V  }* K$ u5 s$ Dreach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
! C( c. l, d8 z1 |spike severely – particularly in Vancouver. However, while
3 n# q0 v. v1 ]% c6 f. Rresidential construction in B.C. will definitely droop, we
# K3 C5 z) v, _. _/ X9 panticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
* T6 p) n- L+ e1 `6 `: `' h- a6 Iwill alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
416-944-5730

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

宋兵乙