TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
. O) X5 T1 ?7 J4 F5 Bfrom 2002 to 2008, unsustainable price increases drove
unsustainable levels of building. Our view is that house
: L8 h; O  A, b/ T; V" kprices exceeded the value of housing that was justified by
; J0 P; `9 e4 |7 m! pfundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
5 Y! V# E# P  Q3 s% Lthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
; }- o8 y$ X" K* s9 _2 A5 Y1 I7 _three years.
2 z, u! T+ V; o, R5 M  WBy “overpricing” we mean that prices detached from
& [9 R9 r1 W7 b7 [1 s/ |& Dtheir 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
# c+ ^+ L! ?0 d8 {% w0 Ato fundamentally justified levels.
7 c/ u- q8 _* I7 f" S% MWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
9 x8 b* b( L7 F. v& Awhere builders accumulate excessive inventories. Although
8 ]5 q; \9 x% m4 S9 Bthere is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
5 J: z" q. A% J( Z% Y, P: ?homebuyers pushed homebuilding to an unsustainable pitch
  `6 V$ I6 M; B' Qthat is now being rapidly reined in.
' o" g- B/ R" B! G& P9 nWhile 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
on markets over the next few years. Even as Canada recovers
, x: A/ s0 s/ C8 w+ D# u7 vfrom the cyclical downturn, house price growth will
9 d8 @* d" l) A& H/ L' I/ g/ X3 }remain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
residential 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
fundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
$ h9 w% w1 j( i. W6 C8 Z' Evalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
of residential construction.
# Z: {$ b9 _% T  E. V4 D' QTo 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
* ~& u8 S( E: _+ C3 f2 w/ p1 c0 ~units were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
3 I1 P% x! |( g0 N2 S& xRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
9 p- w5 |& f' o* ?already witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
1 W, F3 l5 q5 O. ?9 Ibuyers’ territory. Homebuilding in the Atlantic provinces
has been relatively balanced but, while not plagued by structural
# l1 Y, c) I/ fweakness, will be singed by the downturn nonetheless.
3 r: @  H8 [8 ]( t! _7 qQuébec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
/ B  R4 n, h' M( N7 c6 v/ vgiven the province’s history of under-building and low ownership
- v5 i% O+ Q& ~" f8 F: jrates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
5 ^+ j% e9 d5 z9 V% G. a1 T- Ahigh levels of apartment-style units presently under
0 h" Q- R4 n$ m3 Zconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
( c( ~' k* S( A; Ecyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
+ ~$ X3 m$ O5 _5 m" Z, T) v; iresidential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
9 {  _8 |# z2 g8 ?& ninter-provincial and international migration over the coming
years, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
' h! a: m# z, n+ ^) DOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
+ K  i/ }- S5 N- {Grant Bishop, Economist
6 h  W( n" |2 A6 ?- d$ _416-982-8063
Pascal Gauthier, Economist
416-944-5730

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

宋兵乙