TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
" g, \- R9 y, @  Vfrom 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
; @5 ]' b* N7 d$ tfundamentals by approximately 9% nationwide. This
* L. d5 I+ }/ _8 }9 r6 Xoverpricing compelled a level of residential construction
4 N. |# M4 s/ b) q; S  q; Athat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
5 R7 V3 p: n7 b6 D( EBy “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
( m$ c; k" M9 W- jboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
& }2 C  T3 S$ _8 ]/ V& l; MWe consider “overbuilding” of two forms: “demanddriven”
  `# T1 ~8 B, {& gwhere homebuyers buy up too many houses and
, l/ P* q& l7 ?& ~8 c8 Ithat this demand cannot be sustained; and “supply-driven”
1 Z8 n. J1 [" u, B3 f8 Lwhere builders accumulate excessive inventories. Although
2 G0 D$ e; y" g' j5 T" e, e0 ^there is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
' q8 W3 e  [& z9 x) u6 C+ u) _homebuyers pushed homebuilding to an unsustainable pitch
& |5 _0 Z8 K9 R* N- ]* Z; {3 P/ bthat is now being rapidly reined in.
$ s) M. x* B, |# F  a7 zWhile most markets won’t face U.S.-style overhangs,
" }) L& k- z' M% b+ Wthe 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
from the cyclical downturn, house price growth will
0 S' W0 Q3 E( C- P, S! Oremain choppy and new residential construction will be
- h  ~2 n$ R7 B3 G" P( k& l) G! Wdampened, owing to this structural weakness. Construction
& r% e0 [& w1 q; E2 j% N; f: {& Ris now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
6 |2 ^% A  z8 G. @# @2 d: e* f125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
. p0 G! n0 ^& y2 V; x7 y$ qTo 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
' Q( K/ c2 X5 @) k. bvalues since house prices should track incomes over the
8 W' s$ s  E- @, a& ]) blong-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
2 |5 E5 f2 e/ R2 n5 Bof residential construction.
; z% D; d! F: P4 L* {" H( `' \; CTo examine the degree of overbuilding, we employ a
$ R/ N& u: q. j: u# W, U& ^) ~5 N“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
& B4 a8 q1 g9 {: @8 {2 Toptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
. `0 d" r' D; n8 c9 D* f( d; ^% Dunits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
3 v( ~1 ?5 b* h$ l7 |4 n  Mwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
: X6 g* Z9 Y1 u" C. ?% [already witnessing surges in their unsold new homes at the
7 ?: f" C! v! J/ Hvery time that the resale market has swung into strong
* }* X% ]$ _: N2 q: v6 vbuyers’ territory. Homebuilding in the Atlantic provinces
$ x, d% b3 p# T* E4 k% Qhas been relatively balanced but, while not plagued by structural
1 ?: M# n5 W/ `' A, u+ o* iweakness, will be singed by the downturn nonetheless.
, G. D7 }3 [; F3 F6 ?+ hQuébec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
/ b6 b' r- d3 YMontréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
' K. M( R- U& o$ }rates. 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
! p2 \& D: S" z# {3 ehigh levels of apartment-style units presently under
construction mean that record numbers of condos will
* q5 I" l* B/ q( t5 b& Greach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
( ~; J! ^" z! c+ `spike severely – particularly in Vancouver. However, while
$ A* b/ V, z- v8 Iresidential construction in B.C. will definitely droop, we
7 y" N" q% q, D5 V6 ^5 ~anticipate that the West Coast will continue to benefit from
! x0 I. }, Z  v" a$ H9 {inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
0 \  j3 H; L& X7 _will alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
! x/ o& B& B; P9 S5 d9 @416-982-8063
Pascal Gauthier, Economist
6 j$ [" L% ~6 H6 `4 I( C% f) }; k416-944-5730
4 n5 M+ c, S- P! |) n9 L" q
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙