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During Canada’s “Housing Boom”, which ran roughly
7 B3 ?! _8 q) [& xfrom 2002 to 2008, unsustainable price increases drove" U# N& @* }9 R% n8 N
unsustainable levels of building. Our view is that house
2 ]5 H. X, m: j. m! J: ]/ b5 pprices exceeded the value of housing that was justified by: e5 M+ D5 P$ `4 m3 p; q4 I5 p- v
fundamentals by approximately 9% nationwide. This( v/ ?$ ]$ B* I
overpricing compelled a level of residential construction f+ S! H' C0 L* V- T
that exceeded its fundamental-justified level by approximately
3 {, F- J, K% Y. k12%, an excess that was exaggerated in the past; W1 d+ K0 i) z- Q; Y; ~- b; H+ F* _
three years.$ J/ E0 C* j# ?& H& N
By “overpricing” we mean that prices detached from
7 H% Y! S3 \8 Z- I. f# Htheir fundamentals, as witnessed by a steep erosion of6 N& G8 R8 e! i
affordability. The current unwinding of house prices reflects
( J" A+ k2 B9 [9 q! J' W& W) B) Mboth a cyclical downturn and a return of house prices
6 J; N: g+ ^0 m) Cto fundamentally justified levels.! i5 ]; L/ F S/ e4 W5 e
We consider “overbuilding” of two forms: “demanddriven”. {$ F( t7 s1 I9 M+ M6 B' A
where homebuyers buy up too many houses and
8 X: ~; ?8 _4 F1 _( ~7 B5 Sthat this demand cannot be sustained; and “supply-driven”# V: h) _- K" l
where builders accumulate excessive inventories. Although
2 b$ z1 I, W8 ^( gthere is evidence of both types, we contend that Canada’s) d4 X9 y0 U2 P- y1 l. {
“overbuilding” was mainly of the first type, where7 y) n/ C6 M2 l! v; t5 X0 f
homebuyers pushed homebuilding to an unsustainable pitch2 @0 n! q* L- G% X7 E/ J
that is now being rapidly reined in.8 Q3 f- R% f, c- C- a9 [! h
While most markets won’t face U.S.-style overhangs,- z, J9 M/ N' ]! m$ M, k
the construction of too many new homes over the boom
4 j% g4 R% M& ]' `8 L" M4 @means a deepened slump. This overbuilding will likely weigh$ r2 ^1 A& ~5 \' ]7 D
on markets over the next few years. Even as Canada recovers6 |8 ]0 f1 o- B6 ~0 k! g) U
from the cyclical downturn, house price growth will
; E3 q5 l3 N2 }% ~6 \) yremain choppy and new residential construction will be
* S/ A0 O7 C, n) n4 t+ f, sdampened, owing to this structural weakness. Construction
! P# n& I$ U* A) \is now undershooting fundamentals and we expect this5 s* l v# k0 `) x+ H, ?0 c
to persist over 2009 to 2011. We anticipate that nationwide1 ] a7 p) S- e/ d8 K: ^, o
residential construction will fall further to around! O( G0 Z c" {& Y
125,000 starts over 2009 with a trough around 115,000 units3 x a3 `' X+ [. \& i% R( n( \/ A* w
in the fourth quarter.
3 a) R8 }( U: S7 f7 |/ }, ~ XTo quantify the degree of overpricing and overbuilding,5 F& b% u) f3 s6 w
we first develop an empirical model, based on long-run; ]# z7 m, \9 k/ }3 J) _; P
fundamentals of house prices and housing starts in each7 t( i5 c& G. z. Q9 I3 U
province. Affordability is the key concept behind home
6 b1 ?8 i+ @5 p, f; _. ^8 ^% c5 Yvalues since house prices should track incomes over the
+ s9 S/ N9 m' Q; K& {$ r# hlong-run. Since homebuilders build to meet demand, we, E5 d9 O4 m! f& b0 N* u* C
regard housing prices and household formation as the drivers) @4 q9 u' K( k7 N& j2 o% a9 e
of residential construction.+ q, r4 z4 h* n$ w) m1 ^# o
To examine the degree of overbuilding, we employ a
+ K; F$ v+ f. N& X“counter-factual,” asking what level of residential construction, f5 n; X8 U' N+ Z" A: H
would have occurred if housing had been priced, z6 l% `; e. u5 l; v
optimally. We find that actual homebuilding exceeded this
3 \9 X- G7 d: Z" E$ p6 Zfundamental-justified level by about 12%. Although new
Y& U5 Z, Q! C6 R2 Z, J) i0 runits were being absorbed, homebuyers simply bought too* S# ~2 \. }9 ]8 x
many houses at prices that exceeded fundamentals.% i) J7 V6 W! |# v5 Z5 H+ A
Regionally, we see the greatest strains on the Prairies,
- O* {4 Z8 @5 cwhere housing demand will further contract under waning, n/ C, S: G8 f! O# h4 E+ g) u; _0 {9 g
population inflows. Saskatoon, Calgary and Edmonton are
8 z$ V- z; B" {( S$ F/ calready witnessing surges in their unsold new homes at the' e" N3 k, ?6 E! Z& f- w0 Q
very time that the resale market has swung into strong
1 o9 q# |- ^9 w+ Wbuyers’ territory. Homebuilding in the Atlantic provinces6 P4 c# N B* U A
has been relatively balanced but, while not plagued by structural# h0 O2 R! v" n8 |% B) p# M
weakness, will be singed by the downturn nonetheless.' g% B+ K( M( D- |( a5 b N
Québec shows signs of strain – especially given the
" u \" e/ s8 W0 \& `strange accumulation of unabsorbed multiples on l’Île de
' c+ w. `5 Y( Q7 S. I- ^; sMontréal – but recent building has been relatively balanced,
, q* n5 b; K$ s0 m. `" Ngiven the province’s history of under-building and low ownership+ ~' G$ M0 u, q+ \2 P
rates. While Ontario homebuilding will reel from a! k3 V4 [" m4 }/ N1 E
cyclical downturn, the degree of structural weakness appears9 [7 Y" t e# {2 |% j+ [7 ]8 H
limited – with the important exception of the Toronto
! K9 y* _1 H7 t; Icondo market. Both in Toronto and Vancouver, historically
5 U6 m* ]5 M2 ?1 q A) Jhigh levels of apartment-style units presently under
: h: T1 `! W1 Lconstruction mean that record numbers of condos will. S* i2 F, g8 R7 B
reach completion during 2009. If absorption rates fall, as+ c5 H4 @9 O" b
cyclical factors would indicate, condo inventories could
5 v ~, D6 q5 g- m ^spike severely – particularly in Vancouver. However, while& R' ]; X% L3 x
residential construction in B.C. will definitely droop, we
7 [" d7 T% [" U3 x% B6 q5 k$ ?! E& N3 ~anticipate that the West Coast will continue to benefit from# t, ^' q9 a/ F6 W% r2 c5 K: c2 M
inter-provincial and international migration over the coming- J. B7 u6 Y5 U) M) G
years, which, along with improvements in affordability,, A$ J/ X& J( F% e; ?1 _
will alleviate some of the pressure from overbuilding., E* Y+ o5 q' O' S- f
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
) _+ b, m4 ?4 |: R J/ x4 nMARKET RETURNS TO FUNDAMENTALS; n( ~5 C4 K3 s, L
Grant Bishop, Economist5 V8 B; }: t& ~% x3 Y
416-982-80631 b3 z2 v* {3 i6 N. w |& m# A
Pascal Gauthier, Economist: a" H( q4 `7 N
416-944-5730
" ~8 r |: C6 p; x7 @( f1 _; x% M4 L" r" ]4 F# b0 i9 V4 w
http://www.td.com/economics/special/gb0409_housing_exec.pdf |
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发表于 2009-4-8 15:01
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