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
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
+ V8 R: ^& R( m9 Nthree years.
By “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
" A7 _; M8 L% B" O( V" zboth a cyclical downturn and a return of house prices
# z3 q. \, U7 L5 wto fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
4 z2 i  W' q3 Swhere homebuyers buy up too many houses and
2 o( M+ w# e7 C9 t7 T  _that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
" u# F/ ^: }" g1 L. t! M4 |' m* E- ethere is evidence of both types, we contend that Canada’s
0 p. }2 _$ I0 l“overbuilding” was mainly of the first type, where
/ K2 g- l" g- V. V+ x* \1 Hhomebuyers pushed homebuilding to an unsustainable pitch
5 V, _* G( X% U+ ^2 W4 v- |that is now being rapidly reined in.
1 g& |! O/ u4 o+ \) P7 ^7 @2 {9 U' LWhile most markets won’t face U.S.-style overhangs,
! S/ Q6 u: V* W- R% m* Mthe construction of too many new homes over the boom
means a deepened slump. This overbuilding will likely weigh
. h  e* v5 z7 C6 d$ lon markets over the next few years. Even as Canada recovers
from the cyclical downturn, house price growth will
# L% B- Q+ ~5 i! c# sremain choppy and new residential construction will be
- M( U! U$ d* P# Z! _* N* Vdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
3 w- ?# z" F4 v/ ?* V6 y7 F* M7 ^to persist over 2009 to 2011. We anticipate that nationwide
1 A# ?2 \8 ?% `% ]residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
- |- U1 P  w7 DTo quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
* q# x; L" Z8 ^# H  y  J7 Ifundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
7 K* _( `: a, {. D0 Avalues since house prices should track incomes over the
/ |7 f: n4 P; |7 \long-run. Since homebuilders build to meet demand, we
* I4 B; p0 M! `8 O/ x% {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
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
) _: b8 g9 v4 C3 Y7 L% Rfundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
2 P/ `3 l; e; d# }, l2 |0 jmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
& r# _" Z- `( }$ Y8 O3 vwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
* B' x5 e5 E6 b9 U' V4 z/ kalready 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
3 |8 `! ]1 q0 lhas been relatively balanced but, while not plagued by structural
1 W% b( l1 W- H+ R/ H: E1 e4 Yweakness, will be singed by the downturn nonetheless.
' c& \3 n9 ?$ K" ~2 B( |Québec shows signs of strain – especially given the
! s* G9 L0 C$ g" k* |strange accumulation of unabsorbed multiples on l’Île de
1 [3 g$ r) E( P2 g" T( L% x$ ?( {Montréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
, f- \8 c- J7 _7 Rrates. While Ontario homebuilding will reel from a
# C% a$ Z$ }8 g3 Y8 Mcyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
" r; S: P: b5 A# W$ T9 V# \: chigh levels of apartment-style units presently under
) n- f5 s) v% @7 Qconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
, d2 z8 L: n; n& E. l1 v% ycyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
% R( r( a& H5 J+ S# k6 {5 ninter-provincial and international migration over the coming
years, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
* w; n4 R3 \6 k- BOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
# J) ~3 T" s# xGrant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
- Q) D4 J* y1 c+ |5 _) Z416-944-5730
7 p8 h4 G+ ^* x, i, c
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙