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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
, m2 \! @( x7 r6 b) e3 }  Zfrom 2002 to 2008, unsustainable price increases drove
, Q; W9 i. G* s# R. y6 `unsustainable levels of building. Our view is that house+ H# c  o; T1 y$ q- S# H
prices exceeded the value of housing that was justified by) F7 V% u# R0 g/ J+ C3 |) u  Z
fundamentals by approximately 9% nationwide. This
" \3 c7 S" J5 [overpricing compelled a level of residential construction
" o9 E, X5 h+ _) R' jthat exceeded its fundamental-justified level by approximately
) O+ h7 @# `5 S, Z' F) ^; d& F4 E$ n12%, an excess that was exaggerated in the past* q0 a* c( o+ j7 I. ^0 V  ~
three years." H4 }) A9 L6 y5 z( g
By “overpricing” we mean that prices detached from
+ H9 \4 \' m+ P4 f4 c% U( stheir fundamentals, as witnessed by a steep erosion of
8 |2 Y% j% |6 m3 C4 s  `8 yaffordability. The current unwinding of house prices reflects# _# X2 o9 P( V5 w$ g6 j
both a cyclical downturn and a return of house prices( g! Y* E% H. F+ r- `
to fundamentally justified levels.
$ x- \) ], C4 hWe consider “overbuilding” of two forms: “demanddriven”
) M* ^8 x5 T4 g7 {5 ~where homebuyers buy up too many houses and. n+ ]* r  u8 ]3 ~9 E1 Q6 {+ s, H8 e
that this demand cannot be sustained; and “supply-driven”
2 @; Z2 L+ y/ _- a1 Swhere builders accumulate excessive inventories. Although% U$ u' w1 b# A4 A, q' @! e/ @$ b
there is evidence of both types, we contend that Canada’s
' }" A# F$ B& C. ?. E- s“overbuilding” was mainly of the first type, where/ i5 F  z( b/ f
homebuyers pushed homebuilding to an unsustainable pitch7 M0 B; U& l; H! Y' V
that is now being rapidly reined in.
- ^$ R8 g  l+ d7 p( m1 f4 `) AWhile most markets won’t face U.S.-style overhangs,$ C: A, `& w2 `
the construction of too many new homes over the boom
/ n" z& G; T% K7 [5 @means a deepened slump. This overbuilding will likely weigh9 p) \# |" }& u+ |
on markets over the next few years. Even as Canada recovers
" ^5 c, g/ v5 n, ~  s$ c9 ^from the cyclical downturn, house price growth will
4 y  g! G9 z2 _# yremain choppy and new residential construction will be
! d1 a1 O3 ]2 zdampened, owing to this structural weakness. Construction
# V/ ?, f# v$ z: I; d* ais now undershooting fundamentals and we expect this2 r) q# I' o7 a) r7 I
to persist over 2009 to 2011. We anticipate that nationwide
$ K+ [7 s' B  x" c* ^residential construction will fall further to around+ O# m! e5 g% u7 c, q, y6 b
125,000 starts over 2009 with a trough around 115,000 units9 m+ N% o4 Z! A8 C; `3 t
in the fourth quarter." {3 w5 _( a7 E2 Q
To quantify the degree of overpricing and overbuilding,/ D/ F. j/ p% b, K( j: o
we first develop an empirical model, based on long-run
) p. W* V4 [$ @4 zfundamentals of house prices and housing starts in each; k" P* w' M  W; L9 _
province. Affordability is the key concept behind home
% N: O- R/ I4 `2 a. I+ A. }values since house prices should track incomes over the
% L7 `; `4 {7 h( T# k/ S4 wlong-run. Since homebuilders build to meet demand, we
- C. X9 y5 {2 V: Wregard housing prices and household formation as the drivers
' t: v, h& Y- \$ E, f& \1 S3 c6 Fof residential construction.
1 \! G& T! s6 DTo examine the degree of overbuilding, we employ a
7 X2 D, n0 u  }; t  B“counter-factual,” asking what level of residential construction
# s. I- N1 L0 M. s; q3 [would have occurred if housing had been priced0 P2 X0 ^; `& Y4 c: \; H
optimally. We find that actual homebuilding exceeded this
# [4 b. S7 X! N. z- [fundamental-justified level by about 12%. Although new
  \! s6 L7 y7 H( Runits were being absorbed, homebuyers simply bought too+ M' Y! T, ~% P( d/ \
many houses at prices that exceeded fundamentals.
4 L) R' k0 _2 ~. Y; eRegionally, we see the greatest strains on the Prairies,
8 v( P6 Q3 c7 Z: v, G+ Nwhere housing demand will further contract under waning6 ~- v( P4 |4 S0 ], }- \- H
population inflows. Saskatoon, Calgary and Edmonton are. q  \* l" {/ D: M
already witnessing surges in their unsold new homes at the( `* t3 K- B7 i: w' p1 T
very time that the resale market has swung into strong
: l0 G9 L0 I7 \buyers’ territory. Homebuilding in the Atlantic provinces
" n: o1 M, `: K# S& s: _* yhas been relatively balanced but, while not plagued by structural
3 [' y2 n+ q/ o  Q5 Aweakness, will be singed by the downturn nonetheless.
- P: ?( H6 _0 t( U- tQuébec shows signs of strain – especially given the
& _& G3 e) y3 {, ~, m$ Hstrange accumulation of unabsorbed multiples on l’Île de9 i- B# I- X9 X1 @& z
Montréal – but recent building has been relatively balanced,
, d& V6 c$ I: U, z& [, xgiven the province’s history of under-building and low ownership  ~3 Z+ a* m- {' }) f  v! k
rates. While Ontario homebuilding will reel from a6 S6 j# N5 }! s5 q8 X3 M. J
cyclical downturn, the degree of structural weakness appears
& c& P# u' Q4 b8 S1 M& ^! R9 Jlimited – with the important exception of the Toronto
+ {7 }/ [* G9 F' J$ q7 ^6 |condo market. Both in Toronto and Vancouver, historically1 v0 n7 j* H. a' s$ Q6 R% c6 F
high levels of apartment-style units presently under
1 f% o2 g% c% D1 ^construction mean that record numbers of condos will
+ g3 C; j( q; p  R# Breach completion during 2009. If absorption rates fall, as
1 W$ o2 R9 T4 B3 \2 _cyclical factors would indicate, condo inventories could5 b  P% N. G+ Y( _7 ?' N' j
spike severely – particularly in Vancouver. However, while; B9 v; T- @7 [4 U7 U
residential construction in B.C. will definitely droop, we. Z1 ~5 S2 {* n6 ~: [
anticipate that the West Coast will continue to benefit from7 O  N+ a" z. w$ Y
inter-provincial and international migration over the coming
1 {; Y/ x" q5 @1 `8 _6 Xyears, which, along with improvements in affordability,4 X  U* _7 G. B3 r0 ?
will alleviate some of the pressure from overbuilding.
. b+ y0 e+ N: p; ^& s0 TOVERPRICED AND OVERBUILT: CANADIAN HOUSING: N, [: b! j' b& @+ b+ s
MARKET RETURNS TO FUNDAMENTALS5 M1 N8 f( M' Y; h' k7 w4 W
Grant Bishop, Economist
! L0 l9 e5 }, h4 N7 e/ |& C416-982-8063$ Q& `+ q$ {: I5 v
Pascal Gauthier, Economist
- h* \- i" B* ]. E4 L; g, K416-944-5730
: l) j% r! D) P. ^$ `4 V+ _0 f  G( b( z0 u: {) U
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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