TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
( s& ^1 @" Q1 f' V2 A4 u/ u% C8 Kfrom 2002 to 2008, unsustainable price increases drove
/ R2 T3 L+ P4 K9 z6 ~% W3 ]unsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
/ z3 ~, T! T& w; T  w+ {2 ~0 mfundamentals by approximately 9% nationwide. This
7 M' h/ d. q% p) t7 zoverpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
% u$ U" O" ?" q8 K% p12%, an excess that was exaggerated in the past
! I$ G6 \1 ~2 _- V1 ?1 z! g, f+ Ythree years.
By “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
7 q6 g& a9 N8 nboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
. b% v/ Q) L8 P) k4 M! T& sWe consider “overbuilding” of two forms: “demanddriven”
; g: y" L9 Q4 I! B5 @( b, |) Fwhere homebuyers buy up too many houses and
, d2 u7 r8 Y; K! ithat this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
there 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
that is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
) s# v& U7 _2 m5 y: L: k5 B4 nthe construction of too many new homes over the boom
0 C$ p  U; t* U% O' O) K7 r) ymeans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
5 |  U4 L4 i- U" {, Ofrom the cyclical downturn, house price growth will
' o+ m5 D" K+ Xremain choppy and new residential construction will be
4 N  o- u2 ^! Z) Fdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
; Z' \0 w" W- j% r! W4 V8 j1 Aresidential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
9 k6 H* k; M' O: C2 ]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
7 s5 q* z/ n3 l% n3 e: @3 avalues since house prices should track incomes over the
  P8 m) t/ n  a. `long-run. Since homebuilders build to meet demand, we
( p% v& E2 O* C. Lregard housing prices and household formation as the drivers
of residential construction.
: N7 L; b" R5 l0 A: s4 iTo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
8 \0 ?. z4 @4 u. L2 F/ G) @$ Jwould have occurred if housing had been priced
' v" N3 x8 W0 _# goptimally. We find that actual homebuilding exceeded this
( |6 L0 N6 A' [& `2 k$ e; ^5 c: T3 ifundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
2 L  `* h6 W0 L+ b& w' N! amany houses at prices that exceeded fundamentals.
& _0 D8 u9 t; e; c2 I/ O  @: X$ qRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
8 p: V) n" \1 s/ Npopulation inflows. Saskatoon, Calgary and Edmonton are
& {7 K4 I/ F7 D2 Halready witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
' m* ]6 I8 b9 b$ x5 Ybuyers’ territory. Homebuilding in the Atlantic provinces
7 ?: j+ }" \$ I. r8 e6 n- U0 _has been relatively balanced but, while not plagued by structural
0 b. T5 F# v  Bweakness, will be singed by the downturn nonetheless.
: ^1 b4 ?! C& j7 k+ hQuébec shows signs of strain – especially given the
) D: H; v" m( D$ bstrange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
/ ], E; m9 V+ Tgiven the province’s history of under-building and low ownership
% `$ H. o! K; W) V# g; z1 [& ?* j5 Jrates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
: C$ {% h$ B- u& g1 T* T/ @& @5 p$ Glimited – with the important exception of the Toronto
' T) i- o' ]) j+ I* L  Bcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
2 q/ Q9 M2 h- d" V5 Uconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
7 f" w% @  s7 S8 {5 Xcyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
- N0 z0 x( i1 Q$ X4 Sinter-provincial and international migration over the coming
' ?9 K2 @8 e/ G7 x; Dyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
. Q& ]( i* P; l. K" UOVERPRICED AND OVERBUILT: CANADIAN HOUSING
* [1 X- W' m6 @MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
: X' `, Q4 b) t- q+ w416-944-5730

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

宋兵乙