TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
( h+ S; {0 A! W0 l4 |: |: ~+ ufrom 2002 to 2008, unsustainable price increases drove
+ E; b. `7 V  @  S- ]5 Runsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
# j5 D' B7 M' lfundamentals by approximately 9% nationwide. This
( c- H' n* u, G& k" @. boverpricing compelled a level of residential construction
that 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
: U3 d. x  [+ raffordability. The current unwinding of house prices reflects
! y/ d* j* n0 p6 Aboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
4 z! D4 s! X7 R& {' E( w; D- rWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
. |  X4 L% {1 l. wwhere builders accumulate excessive inventories. Although
3 Z3 k" c9 L3 q! J9 }+ athere is evidence of both types, we contend that Canada’s
& g9 M5 U# q" {" ]0 r“overbuilding” was mainly of the first type, where
homebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
2 j" Y* `) G  N2 }6 iWhile most markets won’t face U.S.-style overhangs,
' {2 l6 w# r1 vthe 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
$ y( x  f$ d7 B; Y/ b4 wfrom the cyclical downturn, house price growth will
9 i# |8 K/ Q8 zremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
; |$ b) s# _) ]  h( zis now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
3 r7 V% {+ T6 b: l5 x2 \7 Y. Qresidential construction will fall further to around
1 T; T0 a( e, t1 t; H1 G9 {5 p125,000 starts over 2009 with a trough around 115,000 units
' Z6 }; n- F( N5 m- Uin the fourth quarter.
To quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
: l5 ^- h6 t( E0 x" yfundamentals 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
regard housing prices and household formation as the drivers
+ q4 h: d" T# r. J4 |, {of residential construction.
8 H' a$ d: B2 ]* \4 u' pTo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
# L! ~+ A- _# a! dwould have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
+ l  B# L9 ]& u# h% e3 Nmany houses at prices that exceeded fundamentals.
- p" k5 ^! ~+ z4 H9 i& s. X' LRegionally, we see the greatest strains on the Prairies,
3 e4 V2 f7 o) D  e+ qwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
5 q6 P- n& q8 }) z4 e* R: A2 cvery time that the resale market has swung into strong
buyers’ territory. Homebuilding in the Atlantic provinces
$ f) ^  `- X  y; P7 k. e4 Mhas been relatively balanced but, while not plagued by structural
1 J) N; q( H4 b; ?+ F" B  xweakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
& L/ }& i3 x+ b. V' R# mrates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
1 O8 Q& s% k, wlimited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
9 Z; f8 y2 P  C0 G+ Freach completion during 2009. If absorption rates fall, as
8 V7 w' I2 x/ K0 j4 ]cyclical factors would indicate, condo inventories could
. Y4 ~7 s9 i/ U1 {5 n2 F0 ?spike severely – particularly in Vancouver. However, while
residential 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
* @" I+ j, W) ]/ H. h& K; }years, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
% p, [# E' h$ {; G3 Y* [9 F6 MOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
  _0 ]1 F/ e/ D416-982-8063
+ Y5 L; i8 p0 b! y# {; A+ ZPascal Gauthier, Economist
: J4 B- Q+ _" W416-944-5730

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

宋兵乙