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
( \$ Z3 n, j$ j1 T$ ]6 ^unsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
8 s6 }7 _/ Z, p* Cfundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
1 y! `- C9 ?5 p: nthree years.
By “overpricing” we mean that prices detached from
/ D$ ]' o) V3 W4 Rtheir fundamentals, as witnessed by a steep erosion of
; E+ X2 H8 V; ~7 z9 j: h) Zaffordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
, d) [" A% y5 I+ ythat this demand cannot be sustained; and “supply-driven”
' {9 L2 [3 S4 i2 Y# V# Z9 [where builders accumulate excessive inventories. Although
( y% d7 U1 a8 ?5 \/ n( `: y) b9 K' z' Zthere 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
/ ?/ U6 {8 w  m7 i  y# t2 Kthat is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
7 ^5 V+ I+ Q9 d( _the construction of too many new homes over the boom
means a deepened slump. This overbuilding will likely weigh
4 {! Q1 p( a; o4 r9 ~on markets over the next few years. Even as Canada recovers
1 g4 A3 b$ U7 ]* k+ Pfrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
# R8 w& _' q+ a9 c, Nto 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
! h  k4 @" V; v9 T( D5 G* Ffundamentals of house prices and housing starts in each
0 F! z' Q  Y0 Q% Wprovince. Affordability is the key concept behind home
values 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
" W7 P9 w2 F. J, S, h& |of residential construction.
To examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
/ o9 r5 ]; b" t( cwould have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
2 G  `( z7 e2 k  O- R9 [) `$ {! U/ D, ffundamental-justified level by about 12%. Although new
/ K3 p- D7 x1 J$ ^9 Uunits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
; n5 z5 l$ M  s, x. C1 ~: V* K0 xwhere housing demand will further contract under waning
: B2 y. p  k) j4 F: ppopulation inflows. Saskatoon, Calgary and Edmonton are
. P2 x7 {( D4 ~, p; J: yalready witnessing surges in their unsold new homes at the
2 |( }* D- o' w7 jvery time that the resale market has swung into strong
buyers’ territory. Homebuilding in the Atlantic provinces
! e1 Z. L+ j7 J+ ?has been relatively balanced but, while not plagued by structural
3 ]! r7 c) n+ X$ y: uweakness, will be singed by the downturn nonetheless.
9 j$ M5 J, J9 Z1 }Québec shows signs of strain – especially given the
* Y& o0 t3 C+ M0 F$ |strange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
% |( ^- l: x" j  Q8 ^2 w1 @8 ngiven the province’s history of under-building and low ownership
; h4 T& e$ {; M8 t7 f' ~  arates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
# e/ y: u6 J4 E' E) Xlimited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
6 X! T' G$ @8 T6 u" ]3 S8 B7 N1 Rconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
7 P0 D- |% I5 ^, U" {! X+ Ecyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
; N5 J6 k( v. W4 u. h" Yresidential construction in B.C. will definitely droop, we
; \8 A: O7 F8 u8 _+ G1 ?anticipate that the West Coast will continue to benefit from
  s0 W2 ^* E; d0 s# N6 Ointer-provincial and international migration over the coming
years, which, along with improvements in affordability,
) H8 @1 i1 c8 c( p; Jwill alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
1 l8 I% h: k  L$ f' {5 D/ ?MARKET RETURNS TO FUNDAMENTALS
2 n# b6 b6 o8 q- Y  g; ?1 ^6 QGrant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
. }2 H: H; c$ _; X416-944-5730
% S6 l! g1 m1 r( e$ s) d
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙