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
overpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
3 _& W- [" N% S12%, an excess that was exaggerated in the past
three years.
By “overpricing” we mean that prices detached from
. Y1 X9 z4 r$ e5 H# Atheir fundamentals, as witnessed by a steep erosion of
* c; i- P7 d+ h) t  I- xaffordability. The current unwinding of house prices reflects
1 h4 ]2 R' d3 ?: O; i! Hboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
; H# m! y. u/ d" Xwhere homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
1 M% [. h$ Z& N) W5 o; Tthere is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
0 x# x, S! [9 R. T$ E3 Q2 vhomebuyers pushed homebuilding to an unsustainable pitch
" v! q1 A, F# h" e! d3 Rthat is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
( U: c) U* y6 h- P- Pthe construction of too many new homes over the boom
9 T5 k+ \/ }3 z: Emeans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
- D/ s. _# j) p3 `5 ~4 y! @& n7 efrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
5 l5 }: I4 \3 T' {+ kdampened, owing to this structural weakness. Construction
3 k+ Y1 u0 `9 K, E0 f7 P' @- }is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
, K: t  x$ z/ @residential construction will fall further to around
$ K( z  O; C: }  w& x/ l& N125,000 starts over 2009 with a trough around 115,000 units
  D3 M, \9 m9 j  x  pin 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
values since house prices should track incomes over the
8 A6 p1 u5 d3 H; S( _4 jlong-run. Since homebuilders build to meet demand, we
' z/ P% S; x2 D) y, I( }" Hregard housing prices and household formation as the drivers
( P* f5 p9 P* }" p; P5 Gof residential construction.
To examine the degree of overbuilding, we employ a
( M8 l: [" w5 }+ K6 G“counter-factual,” asking what level of residential construction
) g$ h' p" {* b1 [1 k" x! awould have occurred if housing had been priced
; G' d: N7 Y1 H3 ]" X/ Koptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
% m3 R7 ]9 q8 P4 G# u  jmany 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
3 e# E6 r+ p0 A' Tvery time that the resale market has swung into strong
6 a$ h0 f% R' |7 L) nbuyers’ territory. Homebuilding in the Atlantic provinces
5 u" H6 _1 h8 z8 M0 ]. |1 E9 V& ^; }has been relatively balanced but, while not plagued by structural
7 j, ?8 g& e, Iweakness, will be singed by the downturn nonetheless.
+ A! X: v7 h. }! ?; tQuébec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
% c8 V; Z+ ?2 I$ O2 Z. JMontréal – but recent building has been relatively balanced,
1 i/ f  ~6 N( ?! [; Vgiven the province’s history of under-building and low ownership
$ t* {, p7 n  `! C8 G  Zrates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
( i) l* ~  @& o! Klimited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
- U' p- Y) M, z- G1 W  O0 X+ Ihigh levels of apartment-style units presently under
& e/ L/ I* y4 sconstruction mean that record numbers of condos will
% k; c9 p- p2 N; o$ M! G' O8 Breach completion during 2009. If absorption rates fall, as
1 @" S+ [/ E6 t" `1 ^3 Qcyclical factors would indicate, condo inventories could
* G! c# C% |* S  D* ?spike severely – particularly in Vancouver. However, while
" H- {  [' {# gresidential construction in B.C. will definitely droop, we
2 [9 a4 {7 `5 K7 ]anticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
/ U$ z- E& b5 J: Z6 z5 q/ `/ xyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
. \1 |8 x9 }, U' V8 Y; B9 y3 pOVERPRICED AND OVERBUILT: CANADIAN HOUSING
5 F: B! L  D8 q2 d9 WMARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
' _; c2 w- T; d1 E& C416-982-8063
) t$ J+ a! b( q9 G9 q  ?+ r0 x* cPascal Gauthier, Economist
416-944-5730

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

宋兵乙