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
! d+ v* D0 s$ x0 @+ H2 T7 toverpricing compelled a level of residential construction
8 f, j2 k! U8 l3 r) ithat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
By “overpricing” we mean that prices detached from
+ n5 _9 P2 b* _their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
1 M+ [# h  \0 {, v7 M0 F, Xboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
$ P* Z" T; k- f+ q7 [0 P# ^4 w$ I- ~5 TWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
5 C8 R; _" E1 B7 x5 ^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
, b  l% ~! R3 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
. U5 L, k* q4 q, B% d3 B" lmeans a deepened slump. This overbuilding will likely weigh
& N2 q% a0 A0 o9 i7 G6 Ton markets over the next few years. Even as Canada recovers
& R+ J8 ?) u! g% M. efrom the cyclical downturn, house price growth will
1 r$ f5 U0 e" Y1 Z- P9 o1 X: lremain choppy and new residential construction will be
* X. C! j9 s; D3 _6 @# _dampened, owing to this structural weakness. Construction
, c$ T; q* t& O  ^" ?5 W5 Cis now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
6 s8 N) u* L" A* Cresidential construction will fall further to around
* e4 R6 g* S. `5 W125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
' j% U( @( Q9 O0 ?/ E& QTo quantify the degree of overpricing and overbuilding,
5 Q6 b  A# i/ Z% t2 @8 U/ A$ e# rwe first develop an empirical model, based on long-run
7 K) f8 b/ `8 A! x+ xfundamentals of house prices and housing starts in each
0 v, `& y+ z4 f% H8 k2 I  m; Iprovince. Affordability is the key concept behind home
values since house prices should track incomes over the
' p* ~( o! O) `5 slong-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
of residential construction.
: H6 _2 j8 @9 T3 I# p* jTo 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
fundamental-justified level by about 12%. Although new
& R# e6 v0 t& w/ p/ hunits were being absorbed, homebuyers simply bought too
) V' j( j, X3 Q* d) F2 Wmany houses at prices that exceeded fundamentals.
1 t0 d% }: C: f+ B4 kRegionally, we see the greatest strains on the Prairies,
  c( M" b' E1 A) }- |/ s* ywhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
. ]  `/ M* y& ]already witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
9 I3 f, w9 [% K& c: R" 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
strange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
8 N# E; N1 I0 q$ d% ~4 _cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
; u- b- ^8 H3 X3 X- S* B. ]! ~8 ncondo market. Both in Toronto and Vancouver, historically
! E( Z# Z1 L) g( r2 Shigh levels of apartment-style units presently under
# H+ k2 P1 f8 ~: Z" pconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
+ d  {/ D- f- |# Jcyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
& e4 p2 `8 q; G; a3 nanticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
8 k! L' b; Z% ]/ H3 X. X/ rwill alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
! I( K- \9 j& g# fGrant Bishop, Economist
- \; y) ^* {/ F416-982-8063
/ B1 C/ t( c+ E2 o9 {  LPascal Gauthier, Economist
; P$ ~1 e% F, b+ `2 g. `8 h416-944-5730

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

宋兵乙