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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
/ Q' C) q# G* N- M- y8 n9 Gfrom 2002 to 2008, unsustainable price increases drove7 a; ]4 F! `' M; m$ q3 t  v" K
unsustainable levels of building. Our view is that house# x3 i# G$ i3 n+ w; H) g
prices exceeded the value of housing that was justified by
: L! B, V  ~  w7 [8 z. Efundamentals by approximately 9% nationwide. This
( e# K! g: [8 T, Zoverpricing compelled a level of residential construction! A! B; a& m6 ?3 N
that exceeded its fundamental-justified level by approximately8 C% \3 e( d% q( M2 I
12%, an excess that was exaggerated in the past
3 l5 Y( J" K5 Kthree years.
. r8 H! l; R9 F8 k5 B- SBy “overpricing” we mean that prices detached from
9 J% K) ~+ }- z& Q- n* A% |their fundamentals, as witnessed by a steep erosion of
7 l4 n  L6 Q: t, K  j8 c- baffordability. The current unwinding of house prices reflects
( z1 R# T+ G3 u2 u4 ~both a cyclical downturn and a return of house prices3 k0 W5 y. w( [4 G, [
to fundamentally justified levels.6 E1 U& H: Z8 U* {
We consider “overbuilding” of two forms: “demanddriven”
- z6 _8 S# H2 r$ awhere homebuyers buy up too many houses and
3 u- M8 I, W( X9 Wthat this demand cannot be sustained; and “supply-driven”
5 Z: Q" s3 r! j0 n2 M% hwhere builders accumulate excessive inventories. Although
. c: I. ~, e) l/ a7 N* fthere is evidence of both types, we contend that Canada’s: C2 X; ^5 i- }. ]7 n8 q3 |
“overbuilding” was mainly of the first type, where
; a4 y% B! ~  T. G# o& S9 nhomebuyers pushed homebuilding to an unsustainable pitch( u8 }3 d$ i$ c& L) [1 Y3 ^; Y
that is now being rapidly reined in.
  G  D3 @. C9 f! u& j% X1 |While most markets won’t face U.S.-style overhangs,
  Z$ j  R) l2 W  O1 \( @& ^the construction of too many new homes over the boom
: L8 [2 J- T7 m  R( `$ d  Ameans a deepened slump. This overbuilding will likely weigh
( @9 \* F' S8 \" l! oon markets over the next few years. Even as Canada recovers
/ P6 U. ]  e% q8 zfrom the cyclical downturn, house price growth will
/ j- u' `0 b$ L! {5 H4 ?remain choppy and new residential construction will be
% j1 b8 w! o' k' s% H" \- fdampened, owing to this structural weakness. Construction  t. ~2 j4 @4 g; X4 k8 n, Q
is now undershooting fundamentals and we expect this" u( _, w- m7 O8 ]* {
to persist over 2009 to 2011. We anticipate that nationwide  q2 v" N- L( W7 [6 y: D  p9 k, D; y% ~- Z
residential construction will fall further to around
! M7 U. K7 y, k% M! C0 V125,000 starts over 2009 with a trough around 115,000 units' b" l, q. V7 T& V: D7 U' d% ?
in the fourth quarter.
- ~( u, V$ g( B9 [/ s/ \6 ZTo quantify the degree of overpricing and overbuilding,& x+ S" ?: l5 M+ m$ @
we first develop an empirical model, based on long-run
# q: H7 U- f( @1 n5 r2 b- Cfundamentals of house prices and housing starts in each# r' ^1 G- ^! a/ K; M# a
province. Affordability is the key concept behind home0 f: Z  K& M$ z6 a5 j9 ]
values since house prices should track incomes over the, y+ e$ ?8 [! P
long-run. Since homebuilders build to meet demand, we
/ A3 m0 J/ Y( a9 qregard housing prices and household formation as the drivers
% m' g1 ?8 @: |3 g. cof residential construction.2 n* }$ p8 V2 Y0 k) O9 {
To examine the degree of overbuilding, we employ a( X( x1 ?' @6 |5 y
“counter-factual,” asking what level of residential construction) v  H2 S, y& k5 }$ z( v% z' }
would have occurred if housing had been priced
9 K0 r) {! d& K( S7 Koptimally. We find that actual homebuilding exceeded this
" M& G& a+ t4 T0 p$ Xfundamental-justified level by about 12%. Although new
. \; e( C( v: x# u$ V9 Sunits were being absorbed, homebuyers simply bought too4 T7 Q" u- c' o! _+ ~$ _
many houses at prices that exceeded fundamentals.1 z9 Y% u3 h+ [2 ]9 f/ |( P" K
Regionally, we see the greatest strains on the Prairies,
* P+ Z8 r: K4 E2 v# m: mwhere housing demand will further contract under waning$ n- t/ l! N- h. n3 w3 I$ ?) \
population inflows. Saskatoon, Calgary and Edmonton are  Q1 U* f# `% O8 }% z+ v2 N
already witnessing surges in their unsold new homes at the
: P- Z5 W) |6 Q$ c, |2 M& ~very time that the resale market has swung into strong
) n+ M& `3 o/ E9 t- Z9 K! mbuyers’ territory. Homebuilding in the Atlantic provinces
& s' l) _) x; z. l$ Ehas been relatively balanced but, while not plagued by structural
; @$ u1 b2 R) b1 dweakness, will be singed by the downturn nonetheless.5 i: D0 r  M! {$ E3 ~2 z3 Q
Québec shows signs of strain – especially given the
# V+ k  K8 a0 E9 Ystrange accumulation of unabsorbed multiples on l’Île de
% P4 J8 G! S4 r* f3 Q+ _, ~Montréal – but recent building has been relatively balanced,
1 s9 W- E. D, J8 c( X; u  K8 Ngiven the province’s history of under-building and low ownership2 B, Y, Q) x" g# j
rates. While Ontario homebuilding will reel from a
& N# h% d- w2 \1 i9 @cyclical downturn, the degree of structural weakness appears
$ Z# b) s+ K3 ^; w- j/ T9 Ilimited – with the important exception of the Toronto# M) Q" M! ~5 }, n
condo market. Both in Toronto and Vancouver, historically
& p2 V/ G) P6 ^) ihigh levels of apartment-style units presently under. u4 b- k, h; j5 U8 U
construction mean that record numbers of condos will6 ~; Q5 w$ O; i
reach completion during 2009. If absorption rates fall, as
4 h  x6 L- M$ k, }) lcyclical factors would indicate, condo inventories could
8 [* K8 H2 p) lspike severely – particularly in Vancouver. However, while/ }- x2 z. E3 c: B. R
residential construction in B.C. will definitely droop, we
, V. F; t" O2 }$ B7 K  ^anticipate that the West Coast will continue to benefit from
  m9 D1 f# Q9 w% R1 ninter-provincial and international migration over the coming
$ E/ b; \) r9 G2 I& cyears, which, along with improvements in affordability,
. T2 t3 t  C4 j/ \9 @; jwill alleviate some of the pressure from overbuilding.
! v: Z) q3 h* _, k$ Q+ L& H; Z; [OVERPRICED AND OVERBUILT: CANADIAN HOUSING
6 r. C/ J+ t' ^( ?% }MARKET RETURNS TO FUNDAMENTALS
5 X! i& n9 J& \Grant Bishop, Economist
6 F; @( \0 |5 M+ ^" I; ?) T416-982-8063
: A7 _/ Y7 C4 SPascal Gauthier, Economist
' ~( r" ]7 Y. {# `0 u6 P* U416-944-57308 }4 S, B( T: {: H

# r+ j5 Q3 R4 @1 Qhttp://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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