TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
- H/ S, ?& o0 B) d, {# b! ~from 2002 to 2008, unsustainable price increases drove
unsustainable levels of building. Our view is that house
  l* D7 o1 H+ j3 L2 j( Oprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
% ^! V+ ^$ e7 Z8 ^# Y7 ]* hoverpricing compelled a level of residential construction
$ n1 h: a' [8 W3 w, |+ p% z5 Ethat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three 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
both a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
' D7 _! I3 ^* \3 dthat this demand cannot be sustained; and “supply-driven”
7 Z/ w( h$ ~5 ~. v1 m* Z% ~- y. [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.
! }8 l6 G% ]9 j# N8 b- H; ?: zWhile most markets won’t face U.S.-style overhangs,
( F% e9 ?# c* t# i! f# Y! V$ \$ ~the construction of too many new homes over the boom
means a deepened slump. This overbuilding will likely weigh
1 x1 t  l6 j4 ~; d* |* x& Don markets over the next few years. Even as Canada recovers
from the cyclical downturn, house price growth will
remain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
9 P1 z- G; T3 `: k) J9 l, h! C, d7 vto persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
; I* b, d6 B$ L' JTo quantify the degree of overpricing and overbuilding,
8 t0 }0 c6 W, B$ E' kwe first develop an empirical model, based on long-run
. \" A8 e' P# B7 Pfundamentals of house prices and housing starts in each
0 Y9 t' J( P- @6 ^" Iprovince. Affordability is the key concept behind home
values since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
of residential construction.
3 W+ S8 X" K9 G  qTo examine the degree of overbuilding, we employ a
- u, j8 [$ B+ }! m2 j“counter-factual,” asking what level of residential construction
3 P, i& Z5 p) Gwould have occurred if housing had been priced
! @/ c; n. A' O: Zoptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
/ v1 ]5 ]' f% B% {units were being absorbed, homebuyers simply bought too
2 Q( K. h4 R. T( m7 h$ i6 Q6 Q; |6 ymany houses at prices that exceeded fundamentals.
# r- I3 U' U. P: vRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
. E0 N: O7 e4 U4 Zvery time that the resale market has swung into strong
* b+ _4 R' m1 E8 mbuyers’ territory. Homebuilding in the Atlantic provinces
/ W' Y! l2 t: [& `has been relatively balanced but, while not plagued by structural
, ~1 W0 |) o5 r0 Aweakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
( C3 L8 Y4 s# P+ `; `; ZMontréal – but recent building has been relatively balanced,
" ^& ~7 c/ }4 Q; j- B- rgiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
  T0 N/ B5 Y6 [+ ?6 |0 B. v& K# Rcyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
  M( p. z" o0 j, B% h; Lcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
1 K8 ?7 R; N+ U* Y# f) O- x9 I: Vconstruction mean that record numbers of condos will
4 J$ \) i* ]0 T' c4 |reach completion during 2009. If absorption rates fall, as
% G1 n; }3 x: `6 }) x: u( ?cyclical factors would indicate, condo inventories could
. }2 h* A& Y  }+ {! Ospike severely – particularly in Vancouver. However, while
" m* B/ c, e5 Y) w8 A; A; qresidential construction in B.C. will definitely droop, we
' A  F3 {3 R. Aanticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
( H* t9 \; V( S  Zyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
2 `! \2 u4 l8 v2 {9 V" B) G' OOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
416-944-5730
9 W2 I% a( D# G7 z
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙