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
* h: ^; C# I, ?* t5 Z5 Lunsustainable levels of building. Our view is that house
( X7 k0 u' W4 n) @) w) ~# y& Mprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
( K- f% J7 J6 g' m+ O0 Xthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
+ \' J1 X% T4 a& N1 D, nBy “overpricing” we mean that prices detached from
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
to fundamentally justified levels.
- [- E% W+ B; G6 e8 g: v( ^7 YWe consider “overbuilding” of two forms: “demanddriven”
  N5 r" M: Y" F. uwhere homebuyers buy up too many houses and
: m6 n- C. `2 f5 s/ }# a8 Ithat this demand cannot be sustained; and “supply-driven”
& P6 L3 V( R. q! {where builders accumulate excessive inventories. Although
* x$ B6 b% F) a$ E: mthere is evidence of both types, we contend that Canada’s
# _3 m, M# G3 q“overbuilding” was mainly of the first type, where
: V/ m  y* g1 ^$ w/ E  Ihomebuyers pushed homebuilding to an unsustainable pitch
that 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
  u7 S) `1 C- }7 B. E* a; ]5 n: r9 D2 Fmeans 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
8 v' N: G' f, c+ Z& u, uremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
& d6 O3 {; s4 G' m3 U- f9 n1 nis now undershooting fundamentals and we expect this
1 {& g8 G+ ], E3 w& eto 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,
$ b# @7 E/ c" J3 T8 M+ e0 }we first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
8 E: R0 B! X2 ]+ vprovince. Affordability is the key concept behind home
, G# P6 p& D6 K9 Vvalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
& X" E6 e* t0 o7 y/ Lregard housing prices and household formation as the drivers
of residential construction.
5 C/ m* ~. M% Y  kTo 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
4 |5 l) S, T; G; ]9 punits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
' W2 s9 F, U/ _8 j8 y7 mRegionally, we see the greatest strains on the Prairies,
0 B6 a$ h* n6 Rwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
3 ]0 a' h# a& R1 _# I, r! Ialready witnessing surges in their unsold new homes at the
) W6 E& G) [5 H, cvery 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
% ]6 o& U& R) I  b( Zweakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
4 M& q1 Q- h+ r& H6 sMontréal – 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
cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
5 g- {! c4 s/ dcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
+ Z" N1 h( P0 g7 i8 Lreach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
5 d% [8 C- d9 Y; {7 q# w* lresidential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
- E9 q6 X4 u3 ^+ U  |8 d- j* ^, iyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
5 w# o8 h- l, M6 _" yGrant Bishop, Economist
3 ]) M! a  S: F8 P! L416-982-8063
Pascal Gauthier, Economist
416-944-5730
; H2 \' Q# D- L8 l7 w
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙