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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 roughly8 D/ K* c6 H" W+ r
from 2002 to 2008, unsustainable price increases drove
) y, j, {) b/ Uunsustainable levels of building. Our view is that house+ t$ w8 {& i( `) V. k, T
prices exceeded the value of housing that was justified by# [6 T  ^8 }- y' p; @/ o; n* D
fundamentals by approximately 9% nationwide. This
( Y! ~; R  A* R& {" f6 T% Ioverpricing compelled a level of residential construction8 G  P  K  D# G! C" T+ g
that exceeded its fundamental-justified level by approximately3 }9 t1 a* j2 W* ]  A8 c! I
12%, an excess that was exaggerated in the past
2 [5 T. `+ g# o# d/ a  M4 Qthree years.
9 R, _& X8 v6 d2 mBy “overpricing” we mean that prices detached from/ z# p( Z! ~( {# n5 A
their fundamentals, as witnessed by a steep erosion of
1 s  K7 k7 f$ l- ]0 C# C7 Jaffordability. The current unwinding of house prices reflects* M+ P) J8 I, ^6 D/ p4 O, O, Q
both a cyclical downturn and a return of house prices& g6 q0 g$ V+ r
to fundamentally justified levels.
/ Y% B" V7 X, l2 K% ]) o; u8 jWe consider “overbuilding” of two forms: “demanddriven”( r# V9 ?. x' T& v* b& v
where homebuyers buy up too many houses and3 a: g6 }+ y1 E6 i
that this demand cannot be sustained; and “supply-driven”
2 L+ @  P* z7 e( Iwhere builders accumulate excessive inventories. Although
" c+ k: V/ _* ]. Y+ \- zthere is evidence of both types, we contend that Canada’s
  A5 |+ O4 {& m, L“overbuilding” was mainly of the first type, where; X2 Z; s$ [# k1 t4 w# o7 ?; U
homebuyers pushed homebuilding to an unsustainable pitch6 b0 y$ Y+ n! A, e
that is now being rapidly reined in.
) P5 X3 z2 c  m& \While most markets won’t face U.S.-style overhangs,
& c6 ~  f& l0 y+ Fthe construction of too many new homes over the boom
% O. ^5 x( m/ q3 T, m/ g- q( q1 zmeans a deepened slump. This overbuilding will likely weigh, V, k  X: O# s2 P
on markets over the next few years. Even as Canada recovers/ Q# v3 n4 P. O
from the cyclical downturn, house price growth will
% L( F1 u5 K/ C6 s, t4 ~remain choppy and new residential construction will be4 P; q2 p6 a: {2 {9 D4 p9 {' Q
dampened, owing to this structural weakness. Construction
8 S9 ?1 x4 u+ `2 x+ a: N; n+ ?is now undershooting fundamentals and we expect this
" }8 d$ p7 l7 U6 Eto persist over 2009 to 2011. We anticipate that nationwide
. B3 Y3 t# E2 X& G& \1 l6 Qresidential construction will fall further to around8 n0 r& u4 Z  U* Y. I2 L
125,000 starts over 2009 with a trough around 115,000 units
4 `; p7 w% h% v5 E7 _: W; ]! yin the fourth quarter.
. ]9 L. L8 K$ |; D; M0 qTo quantify the degree of overpricing and overbuilding,
7 a' m2 A! g: q% m: Y8 Awe first develop an empirical model, based on long-run
2 R" X# t' Z% J$ y4 _8 _3 m% Jfundamentals of house prices and housing starts in each+ r8 I2 F1 c6 q& D5 u
province. Affordability is the key concept behind home( U5 U2 w/ Z& t; O9 {
values since house prices should track incomes over the7 w: F# N9 n( A( C% O2 G) y; v
long-run. Since homebuilders build to meet demand, we/ M9 D& ^+ d: m/ H, j
regard housing prices and household formation as the drivers
2 _8 I1 E% R3 @- ~of residential construction.' R1 ^: O- C& v! D
To examine the degree of overbuilding, we employ a9 j9 `/ P" ]% W& Y# e* H
“counter-factual,” asking what level of residential construction8 E& ]5 F  Z  @$ r5 s2 o( u. j
would have occurred if housing had been priced
, U, a8 [* a- V9 Y5 C8 ~optimally. We find that actual homebuilding exceeded this, t* w, V0 Z. m' \2 ?5 m9 X
fundamental-justified level by about 12%. Although new4 R( F, X6 [7 p. v% @* x
units were being absorbed, homebuyers simply bought too
1 E" s6 l/ g  d: b1 B  Gmany houses at prices that exceeded fundamentals.
9 W6 o% j2 S& CRegionally, we see the greatest strains on the Prairies,
( m8 F0 B& ?2 }: i% X& G# _$ vwhere housing demand will further contract under waning
: e/ E2 @. j# cpopulation inflows. Saskatoon, Calgary and Edmonton are/ _& k+ ^. I8 D/ N; Y
already witnessing surges in their unsold new homes at the
; z  e8 C* c# O$ ]5 every time that the resale market has swung into strong
: A$ m+ h* [' U' z& s5 Z' Abuyers’ territory. Homebuilding in the Atlantic provinces+ g0 P0 K4 I1 u
has been relatively balanced but, while not plagued by structural: j4 O/ P2 u, G, w* G* e
weakness, will be singed by the downturn nonetheless.+ s0 `3 s' X$ ]1 t; e5 L
Québec shows signs of strain – especially given the8 _' V$ ~7 t* J# {6 S( d& S
strange accumulation of unabsorbed multiples on l’Île de5 @6 w; e; I( l$ o& B" y
Montréal – but recent building has been relatively balanced,' o' ^6 `9 n5 z
given the province’s history of under-building and low ownership
+ [8 c5 f* M  E" @! trates. While Ontario homebuilding will reel from a
0 y0 P8 {5 z6 h, tcyclical downturn, the degree of structural weakness appears2 T3 C& R% c) H; j# A( C1 R5 |
limited – with the important exception of the Toronto
$ T8 g) F& B5 M$ p! L! Tcondo market. Both in Toronto and Vancouver, historically: T  `8 O# B5 ]+ O$ Z6 D
high levels of apartment-style units presently under6 I& @2 O( D- ~5 {6 l/ C, i2 @1 k
construction mean that record numbers of condos will$ |3 X1 {' ~$ k, s0 _# }6 M& F
reach completion during 2009. If absorption rates fall, as- m% j8 m3 y! o4 \+ U4 N
cyclical factors would indicate, condo inventories could" k5 @  [1 J5 e8 z5 X. ^% n
spike severely – particularly in Vancouver. However, while$ c/ D( c- e$ B% b% q- I! {* R
residential construction in B.C. will definitely droop, we: n  l5 |6 o+ Y  w7 d
anticipate that the West Coast will continue to benefit from1 o# Q, W/ ^" _  W
inter-provincial and international migration over the coming
( @. H1 s/ z5 D0 Dyears, which, along with improvements in affordability,
! w8 K3 E9 V' U- `+ ?: Twill alleviate some of the pressure from overbuilding." p2 U( G+ n$ I; ]
OVERPRICED AND OVERBUILT: CANADIAN HOUSING, h- C2 {. q3 ]  \5 R( `& w
MARKET RETURNS TO FUNDAMENTALS
$ `1 ~1 {/ T, B8 q- W% Q/ e4 t+ U7 hGrant Bishop, Economist& |' F, p$ e) n2 V% N1 n
416-982-8063- U8 F7 T* |, j/ |
Pascal Gauthier, Economist
0 t! Q5 F# T7 G# v: e  F: y# z416-944-5730
1 B9 |' t, d$ Z# u  D+ }1 }9 }, D% Z; {( f) n7 c6 z0 R- r) 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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