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
# E# k  Q& M: J6 p+ m, A5 _) Funsustainable levels of building. Our view is that house
4 D! m# O7 ^* y! H, jprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
" L' s1 H* N4 t2 p: ]; e' a6 N2 u6 Fthat exceeded its fundamental-justified level by approximately
/ }0 a1 U% D: v+ L6 R12%, an excess that was exaggerated in the past
three years.
By “overpricing” we mean that prices detached from
8 Z7 m9 l, q( y  Btheir fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
/ E9 p1 w) X7 c- r0 oboth a cyclical downturn and a return of house prices
: o" i/ k* z; k: y5 Oto fundamentally justified levels.
  n# I5 Z8 w# `We consider “overbuilding” of two forms: “demanddriven”
! a9 A" y9 u/ `' W  ]6 bwhere homebuyers buy up too many houses and
  P& U5 M, G( f; \) p. @' fthat this demand cannot be sustained; and “supply-driven”
1 v8 M5 O' T, g* o: z* l# [% f  g/ lwhere builders accumulate excessive inventories. Although
there is evidence of both types, we contend that Canada’s
6 H! S# k$ l! D, Z% |“overbuilding” was mainly of the first type, where
& u1 t8 ?+ ^- G0 y" ]2 qhomebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
: ?% {" A( [9 T) R% I9 L* D3 eWhile 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
' i, C7 ?, Z7 ^' G  fon markets over the next few years. Even as Canada recovers
% B8 n) s& G1 N4 W+ V+ f2 Q. Efrom the cyclical downturn, house price growth will
" \& n& \7 H" r$ Nremain choppy and new residential construction will be
- ~! j/ |- \6 gdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
, \9 f6 l* i0 lto persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
, U$ a7 c& D0 }  l125,000 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
  f* Y" S8 A& b9 t7 {8 d9 ~fundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
2 s% R# d$ N& H; K3 svalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
& J8 e0 a8 W" U$ P1 l& Fregard housing prices and household formation as the drivers
of residential construction.
7 a5 l% C: Q3 m7 Q+ C  g/ NTo examine the degree of overbuilding, we employ a
% G. L4 E# ~  i% _“counter-factual,” asking what level of residential construction
7 f/ f3 L2 R( O" D+ mwould have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
1 Y8 e" k  }# P5 r& Umany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
1 J& u9 H8 N; Y5 Q: e; Bwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
2 {. U7 h# t2 `+ G6 t# walready witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
' \; N  ~/ N! Y) V( Bbuyers’ 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
& k; {( z" v9 h& V- t1 Ustrange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
/ y3 y6 Y" ^, a& H+ bgiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
& v* q  Y3 }$ m/ ]) plimited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
9 Z0 d0 q  P3 P0 Kreach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
  l- X! ~; d, Pspike severely – particularly in Vancouver. However, while
9 ?3 ?( A( Q4 _9 n4 X: B: fresidential construction in B.C. will definitely droop, we
6 E; V4 ]% o! P: Yanticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
# r+ I& A9 P( s5 g3 \) E4 n: pyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
2 R2 X6 O8 k$ V0 U. AOVERPRICED AND OVERBUILT: CANADIAN HOUSING
8 ?$ P; s& R  H+ o- t+ b% ~MARKET RETURNS TO FUNDAMENTALS
8 G4 ^5 B! U4 v+ {" y3 FGrant Bishop, Economist
; }) P+ E) u9 P) U416-982-8063
% i! @1 ]5 O  O% Q9 x, ^2 JPascal Gauthier, Economist
, x3 M( L6 C; s, i8 F) L416-944-5730

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

宋兵乙