TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
2 H& d+ k2 i: xfrom 2002 to 2008, unsustainable price increases drove
- O1 f% w* _/ k; b  l3 Y! Xunsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
/ O) J- |4 l; ~  }overpricing compelled a level of residential construction
; b0 B6 ^5 f2 E0 Q0 F& Ithat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
$ w, i* H8 l2 Mthree years.
# S# u: G1 h9 dBy “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
& D9 e1 T2 A/ C/ D" S5 c, }both a cyclical downturn and a return of house prices
0 ]7 ^  C+ P8 Q- M  G- E4 A4 {to fundamentally justified levels.
! b, J8 }7 b! eWe consider “overbuilding” of two forms: “demanddriven”
5 x. ^( K! J! y; ewhere homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
/ I" z- `  q( R0 |! o/ ~) Wwhere builders accumulate excessive inventories. Although
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
8 i- Y1 ^* d; n( h- Uthat is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
3 r  o$ n7 F& t. t$ qthe construction of too many new homes over the boom
) l; D1 U: ?  Y  b, _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
remain choppy and new residential construction will be
, L6 m$ }) U5 B) X! b0 Vdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
# m3 {- l; B: U7 ], Y. [' _  @to persist over 2009 to 2011. We anticipate that nationwide
) L0 e( x% D2 jresidential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
) h3 ]' r- O& O5 f$ Q2 ~) }in the fourth quarter.
To quantify the degree of overpricing and overbuilding,
( S" [' `1 N" h. Twe first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
' F' o5 i# l+ m' v( gprovince. Affordability is the key concept behind home
+ C6 L) h) u8 ~7 I2 Qvalues since house prices should track incomes over the
7 d( Y: G! _. \long-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
of residential construction.
To examine the degree of overbuilding, we employ a
8 v: S" O8 w. L0 B“counter-factual,” asking what level of residential construction
+ L4 V" {. M2 P/ T2 O% I9 G! Uwould have occurred if housing had been priced
) o/ s1 }) p7 w3 Y5 ~! `: ~) m5 i' Zoptimally. We find that actual homebuilding exceeded this
. F  W1 e$ k# f7 B6 Tfundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
% @0 V( m! ]. S% n; _$ m& I% imany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
! q% w, t$ m; Z/ C4 \8 D; zbuyers’ territory. Homebuilding in the Atlantic provinces
' E7 }! ?4 K; m' a% n$ ^5 i, Shas been relatively balanced but, while not plagued by structural
& V0 P0 E$ w* fweakness, 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,
  X7 G- e* x+ |9 E6 ngiven the province’s history of under-building and low ownership
. A$ l* c! O, o7 Lrates. While Ontario homebuilding will reel from a
* f+ a/ o9 Z  G/ z( y, [" K5 {cyclical downturn, the degree of structural weakness appears
+ L! I& k/ S! ]" P7 o- C' tlimited – with the important exception of the Toronto
7 }4 m$ p* C- o  i- v  g6 Acondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
6 J" Q) R4 \9 m0 J& K6 R. gconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
$ e6 A9 k/ r* X: Rcyclical factors would indicate, condo inventories could
1 q% I) K. b2 z" gspike 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
& Z6 H% q) G1 ^inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
; E' `" C9 \- J5 Jwill alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
! \+ |5 }9 R8 ?2 KMARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
* R1 S, V6 e  j+ u; k' {4 |416-982-8063
0 U$ Z5 p  I) N6 o- p" C( q6 w0 kPascal Gauthier, Economist
416-944-5730

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

宋兵乙