TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
& ^  ?* |& l; o  Cfrom 2002 to 2008, unsustainable price increases drove
- S: N1 H' D+ X* k( s3 p" zunsustainable levels of building. Our view is that house
4 C# t; t- b6 |+ W) {1 B( |  L- gprices exceeded the value of housing that was justified by
7 ~/ o" E' l( }fundamentals by approximately 9% nationwide. This
( V, k  W  }, m+ D' soverpricing compelled a level of residential construction
) l+ \1 p% g- \0 }2 b3 w  o" j" kthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
1 U( L# A/ Q# v' u! }By “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
( q  F: e/ G/ ~affordability. The current unwinding of house prices reflects
9 I/ u0 }8 I: M2 X% R2 H) u- s% Nboth a cyclical downturn and a return of house prices
8 E. E; ^) x/ c3 t1 nto fundamentally justified levels.
" }6 Q' ]% M2 WWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
) E# j' \1 J3 M1 [+ Sthat this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
& c, a2 W5 D5 S; I" `0 D! t# i/ Qthere is evidence of both types, we contend that Canada’s
# g  Q6 \# }: v" f; P" P“overbuilding” was mainly of the first type, where
homebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
the construction of too many new homes over the boom
- [) o: r( G/ |$ P& R% Dmeans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
) A4 b" D* R2 d7 L# ?8 @from the cyclical downturn, house price growth will
4 h& S, S! W  z$ g* A8 B$ E; Lremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
2 e& w8 D$ }* a5 xto persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
: h! q* t: @* C) }" Q5 Z125,000 starts over 2009 with a trough around 115,000 units
# i- l- V/ B' H2 i+ S! E* win the fourth quarter.
8 s! m) }6 O5 Y, H' m1 t4 ?+ JTo quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
7 ?9 P. L+ |( H1 |: L5 ~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
; y4 u- f7 b1 ~( iof residential construction.
3 Z: A& C+ a8 t  L+ M. ?9 A# UTo examine the degree of overbuilding, we employ a
/ s- A0 v2 f! g0 [, Z“counter-factual,” asking what level of residential construction
$ o) I- \9 t( v3 Y, {2 D+ Vwould have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
! p" v; [) I2 x2 p+ ~4 sfundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
! @. T: G) v5 x& q% X, E0 dmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
8 H- l% d  Y2 rwhere housing demand will further contract under waning
population 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
2 {% [6 H; }% j' u9 e( Rbuyers’ territory. Homebuilding in the Atlantic provinces
+ D0 R: D: _+ v. xhas been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
- l* w! f0 c' }* k4 cQuébec shows signs of strain – especially given the
9 q! h8 Q  D( _/ D. y9 b) B7 fstrange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
# A. V: d: n" @: K, [" ~  ?/ ~5 N0 ?given 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
limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
/ c$ ]9 J4 |# A( p6 Q: d3 X+ s  Gconstruction mean that record numbers of condos will
# s( y" c! j# Greach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
1 }& V4 j/ S: L# O; Fanticipate that the West Coast will continue to benefit from
. P( I) i. x% n6 k& @inter-provincial and international migration over the coming
$ x6 j8 g: u0 C# c4 S! \years, which, along with improvements in affordability,
0 z9 i4 t* c+ A& }will alleviate some of the pressure from overbuilding.
+ ~% U! M/ L5 o5 L3 {OVERPRICED AND OVERBUILT: CANADIAN HOUSING
# ^/ F7 g+ y7 O- E& v. w: F" YMARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
5 k/ T( w5 g+ o6 _; p416-982-8063
, @8 i6 o5 G+ NPascal Gauthier, Economist
416-944-5730

6 v6 k7 `6 E8 }# D% k2 [) chttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙