TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
  p3 g2 [: F1 x/ w+ ifrom 2002 to 2008, unsustainable price increases drove
" N, W  O  S2 @$ Lunsustainable levels of building. Our view is that house
4 ?6 d+ A, n* A: t& o- Oprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
( u7 h7 J# _: \/ n  ythat 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
; w4 L, S: s! Z6 `$ C2 y; otheir fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
, x2 R+ S7 Y* q: O7 O1 O( e, Oboth a cyclical downturn and a return of house prices
8 O+ l1 M# s7 G1 i. uto fundamentally justified levels.
5 G/ h9 N8 i  _" D5 J: OWe consider “overbuilding” of two forms: “demanddriven”
8 P/ H# ?% `. R0 H  M7 _where homebuyers buy up too many houses and
. k+ y5 C, `. ^$ [' a2 Ythat this demand cannot be sustained; and “supply-driven”
  \/ s7 t/ \# l; Q3 ~1 C% Mwhere builders accumulate excessive inventories. Although
. H& U& V4 N; ]5 athere 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.
7 J& u5 o- ~. _While most markets won’t face U.S.-style overhangs,
- w8 C( L- Y) s8 h1 I  M$ Hthe construction of too many new homes over the boom
means a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
from the cyclical downturn, house price growth will
3 s/ B9 R# v+ W% I3 [" fremain choppy and new residential construction will be
$ @8 n1 b/ Y% o$ V5 w( zdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
3 {; X6 Y% U* D5 Y! ]residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
& Q9 t  w6 W0 P7 C4 @" }& XTo quantify the degree of overpricing and overbuilding,
: S# ?/ S. t1 @2 ~( c/ cwe first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
9 x7 F, K; b& j# H. R* A3 g3 fprovince. Affordability is the key concept behind home
  ^/ [. @0 O+ avalues 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
1 ?' z/ Z' U: O8 dof residential construction.
9 e8 }! l& z/ x+ n# R% e6 nTo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
" G% I" U  P( n) t2 Boptimally. We find that actual homebuilding exceeded this
$ L- _  Z1 g$ g9 z+ a0 \fundamental-justified level by about 12%. Although new
# ~0 d# }  d9 r) }7 ?units were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
5 r9 @% D: _9 U6 b$ |0 q1 DRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
* i) d# {; z/ J7 n9 upopulation inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
: ~# W; V! [) T7 a6 H- Kbuyers’ territory. Homebuilding in the Atlantic provinces
has been relatively balanced but, while not plagued by structural
! M1 J0 D/ a( I# A( b, @, ?weakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
, v3 S6 y* \/ ]& e- X) i6 Cstrange accumulation of unabsorbed multiples on l’Île de
5 t0 {/ n  r# ?  w' x: tMontréal – but recent building has been relatively balanced,
4 c* ]" ?  P. B# c0 `! xgiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
- u6 s6 r! @. r- J" ]7 p0 xcyclical downturn, the degree of structural weakness appears
, H. B5 o$ X" _+ Glimited – with the important exception of the Toronto
0 u. u" r1 O8 E. R4 U8 lcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
3 Y: Y/ S! Q& N, \) ], J: Z5 t4 [: Zconstruction mean that record numbers of condos will
. z- J4 H5 x8 \  L$ d+ c  v0 hreach completion during 2009. If absorption rates fall, as
# S( J6 i) c! z/ b6 l5 p- ^4 [cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
. |4 b+ m  U; @' bresidential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
! r% X: M% A& Y+ C5 \( D2 R/ {years, which, along with improvements in affordability,
% k1 }- S/ b+ z1 R. ~4 O3 awill alleviate some of the pressure from overbuilding.
5 W' h! P& ]& y" {9 \2 Y/ COVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
1 g: {$ |9 B/ H$ x# {8 A% r416-982-8063
Pascal Gauthier, Economist
/ O, d$ B7 f+ w( E* ?; d416-944-5730
2 `5 Y7 w7 P; G5 z$ z
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙