TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
4 @+ n3 h& ?8 b# I! B. Sfrom 2002 to 2008, unsustainable price increases drove
unsustainable levels of building. Our view is that house
7 j7 D9 N1 Z, ?8 |+ t* uprices exceeded the value of housing that was justified by
  K7 y& Y( [5 T& h) l( Qfundamentals by approximately 9% nationwide. This
' e' I* m; Z& ]% q1 Soverpricing 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.
, L) ~9 ~& o1 ~7 O9 g+ r! z& mBy “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
5 P* i2 f1 b% ^. J) Q0 ]6 yaffordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
! d$ R! R) \: S7 p7 W' I8 Sto fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
1 r2 u. I( T$ ?) C5 ]6 N6 b* a+ lwhere homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
+ s7 j9 Q/ f: |4 tthere 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.
While most markets won’t face U.S.-style overhangs,
# P1 Z* Q2 _: x8 L% P. |  Fthe construction of too many new homes over the boom
! Q" P. L6 s9 `) C3 B0 umeans 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
remain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
! }- R2 r  f4 [" X: Y9 h- F) ^is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
, Z1 R! W5 ^/ M6 f& g( |+ j- \5 Ain the fourth quarter.
To quantify the degree of overpricing and overbuilding,
8 E8 t( d. [2 Q2 U% Jwe first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
$ e: E" w1 s6 j' ^' s. Hvalues since house prices should track incomes over the
  {* y3 e( u& m( X6 D2 ~& f+ Plong-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
of residential construction.
4 q9 S3 v# F3 q1 |. vTo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
0 l% R" V; [5 W" c2 a- a; C9 T. y4 Nwould have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
2 t# X& W' f' o0 ~. W6 Efundamental-justified level by about 12%. Although new
/ J+ j  d) k# O3 wunits were being absorbed, homebuyers simply bought too
; f5 k7 i* X1 c! {: B7 i* l' q  B$ @many houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
  ~, O! q" V; L6 S5 k$ q: P+ vpopulation 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
) P! F# t) t% Jbuyers’ territory. Homebuilding in the Atlantic provinces
5 C/ v1 h! M- g; K: l6 D/ Mhas been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
5 I% L6 s5 o0 `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,
1 K" J# j; \8 t. Z( R; Lgiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
- S5 E' Z6 @: ^; o# q. R0 R% [cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
, \) ]* L% Y) x. p" `condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
+ @8 j/ G& R; z) t, aconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
& e% k4 m5 o2 i1 B1 i; R) x) Ycyclical factors would indicate, condo inventories could
% Z1 M* u# l8 r, Z- x+ Pspike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
: S* C, J& }" h$ g" v9 ]# m. l  Danticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
$ K( j# I" k+ T0 _# \$ Hwill alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
- |/ t; ?/ r7 [2 J# p7 jMARKET RETURNS TO FUNDAMENTALS
7 I* U0 |) r( @# f$ sGrant Bishop, Economist
' e, T* \$ z& `  S7 W4 o. h% w416-982-8063
Pascal Gauthier, Economist
416-944-5730
9 v0 ^7 L* _1 B  ]3 w6 l0 O) Z
3 ^* B0 D* k2 Vhttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙