TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
* d  z/ A& T8 p3 p: J; h/ Wfrom 2002 to 2008, unsustainable price increases drove
# l# W7 }; J  K9 vunsustainable levels of building. Our view is that house
3 u( g: ?- q7 x: P& H5 Cprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
0 c4 {+ J1 E, ?8 F6 W4 d# Yoverpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
9 [9 ^3 @! L) R& u12%, an excess that was exaggerated in the past
% J6 k$ K  y/ d+ }9 `( ythree years.
By “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
5 g8 l7 q7 f' h" ?# |$ iaffordability. The current unwinding of house prices reflects
- \. m- ]' D1 m: w; l1 e. Bboth a cyclical downturn and a return of house prices
0 I1 a9 J4 N' b( T1 Hto fundamentally justified levels.
% T1 p9 M* R1 u3 k$ e3 d, hWe consider “overbuilding” of two forms: “demanddriven”
% G4 p' g5 L5 d0 P* E& Kwhere homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
, |% y7 I3 }6 Mthere is evidence of both types, we contend that Canada’s
$ N$ [) q- x9 f: t, f' \“overbuilding” was mainly of the first type, where
homebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
; y4 }4 ]( h0 o) Z$ o! G" LWhile most markets won’t face U.S.-style overhangs,
' h$ C7 x6 d* n& ~1 @* S# Ythe construction of too many new homes over the boom
& d& _2 f  E2 A, Nmeans a deepened slump. This overbuilding will likely weigh
6 t$ e1 U2 A& m/ Yon markets over the next few years. Even as Canada recovers
8 ~! Q4 s3 Y: l% ?3 Pfrom the cyclical downturn, house price growth will
' @( P8 y5 n3 \) H2 a2 tremain choppy and new residential construction will be
( o" T% X, E; E/ `: K8 Ndampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
; b7 Z' A& c- V! O% ]3 dto 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
5 c# {6 C8 Y1 _( Fin the fourth quarter.
# V$ Q2 ]& j+ `6 S% ~To 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
* F2 f4 N% e4 _+ Cprovince. Affordability is the key concept behind home
values since house prices should track incomes over the
* ?$ D1 ^; h& q% Z" l% xlong-run. Since homebuilders build to meet demand, we
( c0 W' F, o* i0 T* Pregard housing prices and household formation as the drivers
9 {4 ?- x1 ]4 s; j. [of residential construction.
4 W- p/ Q! q, yTo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
+ j/ {5 F; [7 F, _# m8 {0 Afundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
, d' X# I- ], A6 ]1 i( r3 z3 pmany houses at prices that exceeded fundamentals.
" Q& x" n3 k  h8 nRegionally, we see the greatest strains on the Prairies,
! X( i7 k4 q/ g/ B9 f! D' Zwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
  d- ~3 Y' a8 P& ]; c( {$ ?0 d+ I. Pvery time that the resale market has swung into strong
buyers’ territory. Homebuilding in the Atlantic provinces
$ L0 m0 I/ ]8 o8 @' A* \0 ahas 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
& R- [( w' y& i4 T: b* xstrange accumulation of unabsorbed multiples on l’Île de
. I! s1 s) E6 ?% D0 XMontréal – 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
cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
# z4 Q: y' L3 S/ X, o5 X0 |high levels of apartment-style units presently under
8 v5 I( m, {0 V! {/ x  Lconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
3 w# c; u% H8 L) C- f; Icyclical factors would indicate, condo inventories could
; D4 T. i% ?! {# s" Pspike severely – particularly in Vancouver. However, while
3 L  \$ P# e. e- ]! R1 V: lresidential construction in B.C. will definitely droop, we
" W7 K6 p( C' K) Santicipate that the West Coast will continue to benefit from
6 v' q, q% N( R7 kinter-provincial and international migration over the coming
: I& [6 Y. i+ q3 l8 Xyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
( B3 g2 ]# P) l& a* ]  F- h1 v# H2 qOVERPRICED AND OVERBUILT: CANADIAN HOUSING
0 f+ u: c- D4 P5 h! Y' GMARKET RETURNS TO FUNDAMENTALS
9 X; U- x; t! z1 h9 \9 AGrant Bishop, Economist
: I9 O9 G* W8 v6 V: V8 P# d416-982-8063
Pascal Gauthier, Economist
416-944-5730

7 H  m3 e7 P8 s+ X8 }http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙