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TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

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发表于 2009-4-8 15:01 | 显示全部楼层 |阅读模式
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During Canada’s “Housing Boom”, which ran roughly
& T* Y! [/ O2 v  I, j4 i4 T% nfrom 2002 to 2008, unsustainable price increases drove0 `; z2 W+ g: w! ?+ [: u. U
unsustainable levels of building. Our view is that house3 ~/ }9 L) X" A( V
prices exceeded the value of housing that was justified by1 D  J$ D* b7 K3 p; D
fundamentals by approximately 9% nationwide. This
; ]# X2 I; ~1 Z, s8 [' p" Soverpricing compelled a level of residential construction  y$ _. q7 w$ W9 y
that exceeded its fundamental-justified level by approximately) l; J) u4 a: I
12%, an excess that was exaggerated in the past
% R3 m0 ^' p0 g2 a+ D" Dthree years.8 |( C  u! B( K3 P
By “overpricing” we mean that prices detached from
/ q- Z8 E! Z8 i; X$ S" Ntheir fundamentals, as witnessed by a steep erosion of
1 e) n; M3 b, ]- g6 oaffordability. The current unwinding of house prices reflects# v5 R' ^2 R5 I& A2 e, w
both a cyclical downturn and a return of house prices
$ j' s7 \! T! |to fundamentally justified levels.
* w; z9 g8 |% A6 N' dWe consider “overbuilding” of two forms: “demanddriven”* ]  d+ R; {* I& P( j, |
where homebuyers buy up too many houses and  l4 p- H7 `- y3 O0 l+ b3 s/ ~
that this demand cannot be sustained; and “supply-driven”
1 Y. M) W& ?; d( ewhere builders accumulate excessive inventories. Although
/ A7 H5 ]. ], M1 gthere is evidence of both types, we contend that Canada’s9 ?* U8 k$ K( f1 u3 l
“overbuilding” was mainly of the first type, where7 V' ]2 d% a4 j  {( c+ s; u
homebuyers pushed homebuilding to an unsustainable pitch, `9 \# p9 B3 J: K5 n7 x- [
that is now being rapidly reined in.) I; P3 J5 f. f& [: h, l+ b
While most markets won’t face U.S.-style overhangs,
5 l2 c: O& t' }* `, V  ethe construction of too many new homes over the boom3 V5 o+ T7 b& E6 ?4 h$ R9 E& i, G
means a deepened slump. This overbuilding will likely weigh7 m: x1 T4 _/ J7 j0 g" C; Q& z
on markets over the next few years. Even as Canada recovers: |+ }1 f, [9 D0 S8 J) B8 x
from the cyclical downturn, house price growth will
" [1 f$ s. h$ R! y: Y' M& e. Rremain choppy and new residential construction will be4 x+ @" X( n' E8 [, L$ F' B0 \0 n; }
dampened, owing to this structural weakness. Construction2 b2 X2 X+ v2 V! T: ], s
is now undershooting fundamentals and we expect this% N0 q6 g" j  p) P
to persist over 2009 to 2011. We anticipate that nationwide
) r$ ^( Y, u% u7 kresidential construction will fall further to around$ e! k  P% i& \8 |! N
125,000 starts over 2009 with a trough around 115,000 units$ v$ _( r- ~8 M0 e. D
in the fourth quarter.
0 T! j) {9 |* O* x% T8 Q/ _8 f5 lTo quantify the degree of overpricing and overbuilding,
6 L9 M/ e3 e7 e/ r8 H# Lwe first develop an empirical model, based on long-run
' ^! b/ t7 r. Q5 K. B5 v$ i' j( Wfundamentals of house prices and housing starts in each
2 Q% Y+ Z8 r6 e/ U+ Rprovince. Affordability is the key concept behind home
* _% P4 t) Q2 X4 t" X$ C9 Uvalues since house prices should track incomes over the3 V6 B& U0 W* n
long-run. Since homebuilders build to meet demand, we( F' X0 S1 r% z5 B2 v4 G
regard housing prices and household formation as the drivers7 u) W4 j" N% C; z* I3 I
of residential construction.- m( t- G7 P+ J3 b  c  P# r
To examine the degree of overbuilding, we employ a+ F5 v( x) u6 R0 G$ I3 r. s( q
“counter-factual,” asking what level of residential construction( i" J/ Y/ x# ?$ s5 R9 U
would have occurred if housing had been priced
: @" V0 [! ~) ^: Zoptimally. We find that actual homebuilding exceeded this
; `1 J  c0 {$ O  p+ w$ S' m0 sfundamental-justified level by about 12%. Although new7 b" d/ I) `. C" |2 U! C) I
units were being absorbed, homebuyers simply bought too
; m& P- ^3 B/ c# j7 R; ]+ Y4 hmany houses at prices that exceeded fundamentals.
/ m& w, K/ L3 Y' u- I" wRegionally, we see the greatest strains on the Prairies,
4 m- E  c* ]9 R( E+ Q8 G( T7 y1 Xwhere housing demand will further contract under waning/ F0 W* m# S* x2 _2 O5 |0 z
population inflows. Saskatoon, Calgary and Edmonton are
) V% T& m7 P; X. z  ?2 qalready witnessing surges in their unsold new homes at the/ i% q" P6 ~* U
very time that the resale market has swung into strong( F8 u6 j$ ?- x& m
buyers’ territory. Homebuilding in the Atlantic provinces" Y, v. Q- [( y5 Y2 W: r. q
has been relatively balanced but, while not plagued by structural
- t6 r- q0 G7 }; b. bweakness, will be singed by the downturn nonetheless.+ }' B4 r! y7 P( V' B8 u7 x! o
Québec shows signs of strain – especially given the: K# t, n5 M0 F4 f6 m+ W1 U+ A
strange accumulation of unabsorbed multiples on l’Île de
/ @4 K( F7 c9 VMontréal – but recent building has been relatively balanced,
+ O& J) D. x* T/ H# O4 I$ y0 t+ Dgiven the province’s history of under-building and low ownership4 H8 L/ l* |1 K  L1 M/ I1 L( x
rates. While Ontario homebuilding will reel from a
( R9 V- W: S( c5 H2 U4 A/ tcyclical downturn, the degree of structural weakness appears! Q+ h3 [4 u  K2 ~; g9 S) }
limited – with the important exception of the Toronto" K. d5 Y$ D! C. J. e' ^
condo market. Both in Toronto and Vancouver, historically4 G0 q- R' U; [. ~' o
high levels of apartment-style units presently under
" q+ S; w) h& M( ?construction mean that record numbers of condos will, c* {3 w  D: O4 [9 x+ P
reach completion during 2009. If absorption rates fall, as
1 O6 C' J6 k) _/ d; N' l. g2 bcyclical factors would indicate, condo inventories could
$ O: @* A+ Z6 q' C. s) }2 d8 _5 j% cspike severely – particularly in Vancouver. However, while6 q/ Z3 w. y# N. }9 \
residential construction in B.C. will definitely droop, we
. `" B6 M0 N; [anticipate that the West Coast will continue to benefit from1 b+ @0 k! Z7 t$ @4 O! U3 l
inter-provincial and international migration over the coming6 r8 i# G& N2 W; D/ @7 V4 J
years, which, along with improvements in affordability,
* ?; @1 @! v6 D) ?9 s7 cwill alleviate some of the pressure from overbuilding.
5 m& p1 T/ ~3 B; ~OVERPRICED AND OVERBUILT: CANADIAN HOUSING4 n6 e, a+ Q1 p% \
MARKET RETURNS TO FUNDAMENTALS
3 X. L, g+ P- r2 e$ Y# {Grant Bishop, Economist
3 Z; T  O- X" I6 D416-982-80630 V1 |, R! ^5 Q" D3 X
Pascal Gauthier, Economist4 {  w' Y: @8 x* Y7 u! d
416-944-5730! O3 l8 N, @5 }8 `
( d  x; H) J0 g7 K4 b
http://www.td.com/economics/special/gb0409_housing_exec.pdf
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发表于 2009-4-8 20:39 | 显示全部楼层
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