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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+ U& y" z" n" y1 g4 r2 l  ]! y
from 2002 to 2008, unsustainable price increases drove0 q% l/ ^0 A9 l4 i  Z- Y. l+ [
unsustainable levels of building. Our view is that house; Q! ]) k' r( Q+ h
prices exceeded the value of housing that was justified by
- T& p3 q+ T# l- f- \8 b1 A6 Qfundamentals by approximately 9% nationwide. This' Q1 h" q0 v" w: [% {; @
overpricing compelled a level of residential construction
8 I% h7 I+ j" ]- F* V4 Y; [that exceeded its fundamental-justified level by approximately- L. y: i! ?7 G: ^
12%, an excess that was exaggerated in the past, _. W; ~% W' ~6 a+ C$ l6 A
three years.
1 ]+ {- f& V+ A& e. RBy “overpricing” we mean that prices detached from
( |# ~! U1 ~" w! itheir fundamentals, as witnessed by a steep erosion of7 e1 R) M- I5 T+ f7 a* z
affordability. The current unwinding of house prices reflects& ~+ r! `/ a. f+ i1 d  [# [' I
both a cyclical downturn and a return of house prices
, v2 @) n: O: K% |; mto fundamentally justified levels.6 v) Q% O6 z3 _  n1 Q" {& @5 h
We consider “overbuilding” of two forms: “demanddriven”
  w" ~. N% K1 N/ {9 R, L( v* V. Fwhere homebuyers buy up too many houses and
$ }, S: f( @- E& }7 Fthat this demand cannot be sustained; and “supply-driven”
( r2 t2 O( ?; qwhere builders accumulate excessive inventories. Although# D1 J- Q/ K4 S
there is evidence of both types, we contend that Canada’s7 E3 N* r5 n9 \8 q: G
“overbuilding” was mainly of the first type, where4 h: q4 L, b: e
homebuyers pushed homebuilding to an unsustainable pitch6 l# P0 O$ C+ f. d5 C- b0 T
that is now being rapidly reined in.
+ F1 k, q) }( t# N" YWhile most markets won’t face U.S.-style overhangs,
) S- [  e4 }  Y: q0 ithe construction of too many new homes over the boom: Z2 d' ]1 V* |" e) I& T
means a deepened slump. This overbuilding will likely weigh- x: [( r9 C; {, K  _% Z; h6 y
on markets over the next few years. Even as Canada recovers$ s9 g2 N) R& A0 v
from the cyclical downturn, house price growth will
8 w) x; q( H2 G9 }- _9 hremain choppy and new residential construction will be
/ E6 m1 x5 ~  f0 A9 L4 M4 Rdampened, owing to this structural weakness. Construction: S9 l4 k2 @5 j, w6 z( T9 `
is now undershooting fundamentals and we expect this. F# W& ~0 o2 A5 W% v+ H
to persist over 2009 to 2011. We anticipate that nationwide
% h! V6 x5 D1 U4 B3 o5 H5 Tresidential construction will fall further to around3 C6 y0 z$ H6 d# J/ o( g* R
125,000 starts over 2009 with a trough around 115,000 units
' I5 H( t. G; v' E6 rin the fourth quarter.7 a+ U. x5 X8 H; V4 I
To quantify the degree of overpricing and overbuilding,0 b5 @  T3 U& ?  m- ^/ D8 J0 p% X: K" d
we first develop an empirical model, based on long-run
; B7 l# n# i1 O6 j2 e0 w( rfundamentals of house prices and housing starts in each
3 o6 d0 E/ y# Kprovince. Affordability is the key concept behind home
; z: O) \; p  F8 x* j) P5 xvalues since house prices should track incomes over the
0 Z! ?# }7 S2 s* K+ u0 E8 s& u; slong-run. Since homebuilders build to meet demand, we
, t4 e0 y0 D  v+ @7 `8 K8 j/ l0 w3 Cregard housing prices and household formation as the drivers
3 i% `& i. z* X: d9 J; yof residential construction.
) H+ c& H1 O+ dTo examine the degree of overbuilding, we employ a
8 ], k: Y" D/ O0 Y/ v2 U* N“counter-factual,” asking what level of residential construction
: n8 X, h& O0 |4 Zwould have occurred if housing had been priced+ F6 z+ M6 T4 T
optimally. We find that actual homebuilding exceeded this; J% z+ R5 s: n6 ~7 |( r' q/ w
fundamental-justified level by about 12%. Although new
7 I: E. j; C" J# y. Z3 W/ C) A5 Munits were being absorbed, homebuyers simply bought too
" @$ |, u: U3 i; j  F1 w: O) Q7 zmany houses at prices that exceeded fundamentals.
8 U7 n3 M5 Z" r/ ]$ bRegionally, we see the greatest strains on the Prairies,! H. [0 y, t. `6 p9 ?: B; e8 n
where housing demand will further contract under waning1 @: w/ Y9 C7 ]+ j7 `/ q( a9 N
population inflows. Saskatoon, Calgary and Edmonton are
9 U5 {( F7 Y- Salready witnessing surges in their unsold new homes at the
1 t! q$ D+ x" {" k% b+ every time that the resale market has swung into strong
; ^: C+ ?5 M* _3 T( M& q* bbuyers’ territory. Homebuilding in the Atlantic provinces# G. V" f& q! @5 H, C
has been relatively balanced but, while not plagued by structural0 }3 Q: G7 L0 x3 J$ T6 s+ M
weakness, will be singed by the downturn nonetheless.
. U/ f4 A5 ^, Z; s- r4 S3 H  i9 S6 G: uQuébec shows signs of strain – especially given the
: D, z8 A( `+ ]/ B- Vstrange accumulation of unabsorbed multiples on l’Île de  U% c: ?6 `" H
Montréal – but recent building has been relatively balanced,  `" Z+ ~) h* E* {2 E: S( T
given the province’s history of under-building and low ownership
+ Y  x' w) I4 I7 nrates. While Ontario homebuilding will reel from a. V! t% z, T$ o* Q* d% }8 d8 C
cyclical downturn, the degree of structural weakness appears( a/ E- q2 Z2 U; @! m
limited – with the important exception of the Toronto
2 S! X7 k4 x  ]7 K) Pcondo market. Both in Toronto and Vancouver, historically$ Y+ M. H5 |6 p2 t, l8 ]$ i7 X
high levels of apartment-style units presently under
+ Q2 U7 s: W2 Q- ~  r$ ?+ _construction mean that record numbers of condos will  t' T8 {  |. o5 p
reach completion during 2009. If absorption rates fall, as" a9 W* Q. Q3 S9 ?4 d+ |# i: t
cyclical factors would indicate, condo inventories could2 B/ h, D2 i- n: K1 T' r  \
spike severely – particularly in Vancouver. However, while( j9 z8 A1 h& ?
residential construction in B.C. will definitely droop, we: _* [! U. H* C. O: G
anticipate that the West Coast will continue to benefit from3 N  f/ b' I' [% v7 N& O
inter-provincial and international migration over the coming
$ E% R. C. E$ y  q6 g; X  l; {- ?years, which, along with improvements in affordability,
; O2 J  W4 D4 ~' d! `) {. N1 c0 D* R7 Uwill alleviate some of the pressure from overbuilding.1 i6 C2 n9 n4 A3 K1 R; V8 O# b% g# Q
OVERPRICED AND OVERBUILT: CANADIAN HOUSING# ]7 y- B" _. B
MARKET RETURNS TO FUNDAMENTALS4 r5 o+ m4 [; M: N4 w) Q
Grant Bishop, Economist
: ~9 d3 d! `8 k5 N  Z+ \416-982-8063- t* N( g# F1 R6 p
Pascal Gauthier, Economist. K$ k, l' |' A8 z7 y
416-944-57303 U3 T" C% B' K2 S
  j  `) Z5 B5 O3 D% @$ l
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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