TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
from 2002 to 2008, unsustainable price increases drove
* V. L4 U' `: `2 f. N  g# u% b* bunsustainable levels of building. Our view is that house
' ]) T, o7 l7 B, ~prices exceeded the value of housing that was justified by
1 ~+ |' t' w$ H/ v; pfundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
5 |. X0 D$ k( N0 U4 j12%, an excess that was exaggerated in the past
$ m/ ^, q% F1 W$ ~* z7 [three years.
By “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
1 r* V# {/ D4 T' a: N* Gto fundamentally justified levels.
9 k  i( ^! F3 |5 m) N- l6 VWe consider “overbuilding” of two forms: “demanddriven”
, E' `* v# i% F; Ewhere homebuyers buy up too many houses and
0 O1 `. f  m( K) M3 f( mthat this demand cannot be sustained; and “supply-driven”
0 i% ~1 d/ G3 ~where builders accumulate excessive inventories. Although
there 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,
$ i7 U& Q" m5 p6 Dthe construction of too many new homes over the boom
5 b4 u4 S# z/ |$ _1 cmeans a deepened slump. This overbuilding will likely weigh
& U- @1 ~& z  v! T! l2 \on markets over the next few years. Even as Canada recovers
( J. t2 P: M& ^from the cyclical downturn, house price growth will
9 g/ d5 h8 q* d/ q4 T6 Gremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
4 P6 U3 o; z5 F$ i( `0 dis 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
in the fourth quarter.
9 j( t9 W& H- W& E( p: i/ w6 p* STo quantify the degree of overpricing and overbuilding,
- }; o: N; o0 `% {) J2 ]: _$ A& gwe 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
5 H: u5 b1 a# \/ H+ M% Ivalues since house prices should track incomes over the
4 a! b# Z( X- E) A8 f4 j" \long-run. Since homebuilders build to meet demand, we
+ n1 e. q' h! ~4 t% |1 K' kregard housing prices and household formation as the drivers
of residential construction.
To examine the degree of overbuilding, we employ a
$ ~( z% V& r& l! N“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
% U+ F6 u: u; L: A2 U2 Boptimally. We find that actual homebuilding exceeded this
" r! c) o, x* |" ffundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
6 M/ O6 V0 L$ \- a. g: wmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
, r( t2 ^; z; B  Nwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
. ~& C- ~7 K% S$ {5 W1 u; \very time that the resale market has swung into strong
# z9 |( s& q5 tbuyers’ territory. Homebuilding in the Atlantic provinces
- G3 ~3 z4 G' Y6 h1 n% e1 v7 e3 f; bhas been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
+ P3 S" W8 ^! f' j& ]4 Q& [- CMontréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
* |+ V  A  f  K0 Y# Pcyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
' E' f9 w; x' A9 zcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
  M: o( {5 b( i; s0 ereach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
, U8 @: _' z, |8 Nresidential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
3 \- z7 W1 ~9 u# [  Y) finter-provincial and international migration over the coming
years, which, along with improvements in affordability,
: m6 @: i% j1 H' F. _will alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
& }( _; }% @9 h" ?, JMARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
: m  i. m8 p/ l# t% q6 Q7 K4 I416-982-8063
' X; U! P" I% O; d8 w( dPascal Gauthier, Economist
416-944-5730

7 s  b- o- K# c8 Yhttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙