TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
$ U4 D8 E! V6 b/ Qfrom 2002 to 2008, unsustainable price increases drove
, X( W8 Z2 q( n6 K  ?- Bunsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
4 A9 M( ^7 D1 Hfundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
* n) M* L* Q  A( y/ B2 s# bthat exceeded its fundamental-justified level by approximately
! U9 T- S3 M4 ^' ]( B12%, 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
0 Q9 k1 A, J0 d, d& I9 aaffordability. The current unwinding of house prices reflects
7 \7 i( s+ `: ?/ B' o! uboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
( n( y* n; e8 d0 f. _0 KWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
% U5 {& r6 k* a* D$ wwhere builders accumulate excessive inventories. Although
there is evidence of both types, we contend that Canada’s
, c3 U$ h3 ?1 A  d, ~' m* F" q' C: Z“overbuilding” was mainly of the first type, where
homebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
+ I, q# T6 j( W7 ]While most markets won’t face U.S.-style overhangs,
the construction of too many new homes over the boom
' I4 i& P9 X8 m. ]2 _! B0 pmeans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
5 {) E- o7 A7 |( Dfrom the cyclical downturn, house price growth will
# ?. ?% e4 L0 K$ b/ x! T" Xremain choppy and new residential construction will be
! R0 a9 h7 I8 u4 q  c( ]dampened, owing to this structural weakness. Construction
% u: W7 k7 P" Z/ Z$ q% yis now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
* N: E, N! h$ F7 z* W( h7 Y+ eresidential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
To quantify the degree of overpricing and overbuilding,
* j( L$ ]$ M6 ^we first develop an empirical model, based on long-run
! e' ~7 Z  Z7 u! @, ffundamentals of house prices and housing starts in each
province. 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
, C. ?% s" }* d) F6 x3 M* X# yregard housing prices and household formation as the drivers
. O, G( u. U, v2 Xof residential construction.
To examine the degree of overbuilding, we employ a
- r: p" P' X4 N1 {: N) [4 f2 s$ i“counter-factual,” asking what level of residential construction
0 u& s9 `+ d% lwould have occurred if housing had been priced
' ^% I& C3 F) l; u1 ^optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
! x, \  @8 k$ t$ |: ]4 runits were being absorbed, homebuyers simply bought too
' q! Q1 G4 ^" u. D9 @0 cmany houses at prices that exceeded fundamentals.
" n# D0 W. z0 ]( p: Y/ K2 V# DRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
5 H( S" w! y# |" B6 `' o3 Y: Epopulation inflows. Saskatoon, Calgary and Edmonton are
7 D* F! [3 K, }8 J9 T- z, q. `5 ^already witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
" B4 W0 a8 B% g3 v. H) B' nbuyers’ territory. Homebuilding in the Atlantic provinces
has been relatively balanced but, while not plagued by structural
5 ?, X" j6 M6 ~7 ]( I" P* ^4 a' A( Uweakness, will be singed by the downturn nonetheless.
0 x1 g# I6 \1 `! VQuébec shows signs of strain – especially given the
4 I! n$ ]3 D9 E* Jstrange accumulation of unabsorbed multiples on l’Île de
+ S9 v1 Q/ H& c  P( E1 qMontréal – but recent building has been relatively balanced,
4 Y  E8 T+ E( A. \) j+ Agiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
2 y$ J2 v9 @! p2 ?+ K5 Zlimited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
+ O" U. J( p" U- Y3 gconstruction mean that record numbers of condos will
7 i4 f* v- K9 {8 @9 o( Freach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
" w* }4 K! M  p# {) [( wspike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
2 Q8 @, F0 r1 l( X5 N7 e2 wanticipate that the West Coast will continue to benefit from
# J7 G1 d$ J, }inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
; `6 G2 z1 J% X# ^# cOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
416-944-5730

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

宋兵乙