TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
2 Q. o( g8 d* \* X* [/ ufrom 2002 to 2008, unsustainable price increases drove
/ n  {. n! S" C: d$ a$ k0 ]unsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
6 `) @# f- U% _- Tfundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
+ v% q/ u4 e6 E8 {( ~) O12%, an excess that was exaggerated in the past
% E! a8 Q# b/ G+ Rthree years.
By “overpricing” we mean that prices detached from
& D" ?  I6 V# r4 `2 w) Jtheir fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
. T7 i0 Q8 K7 U0 h5 c6 Dboth a cyclical downturn and a return of house prices
) d9 M. q) U1 r: g& A, Y' Gto fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
1 I+ P0 P6 Z; ?; Z# ^where homebuyers buy up too many houses and
5 {: T! b# C% x- D. p4 `7 ~0 C# R8 vthat this demand cannot be sustained; and “supply-driven”
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
* d3 i% v. w4 y* v, Q0 xhomebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
. d/ S, l# P% YWhile most markets won’t face U.S.-style overhangs,
: d# d0 _( r) n0 c5 [3 `# ithe construction of too many new homes over the boom
3 B; F: \6 Z1 _5 A2 W$ H0 wmeans a deepened slump. This overbuilding will likely weigh
9 F0 z$ s+ Y1 a: y; j1 Yon markets over the next few years. Even as Canada recovers
+ X) l8 r$ O$ k9 Kfrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
) g0 K1 R8 a. t; I$ ?5 s- }dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
' y6 s+ h9 F! Q  y  H% jto persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
+ H! q& [0 c( a# L7 j3 k# S4 R125,000 starts over 2009 with a trough around 115,000 units
7 `8 ?. I) K; n- H6 K/ Nin the fourth quarter.
( j! a2 {+ z! z5 nTo quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
  S3 s. @/ C2 [1 k6 s) L& ?fundamentals of house prices and housing starts in each
+ X9 z/ ]# ]' v4 }/ I! \# Dprovince. Affordability is the key concept behind home
! z) C6 v; n/ f$ s6 N) {values since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
8 q% D6 E) H5 q6 [% v" Hregard housing prices and household formation as the drivers
6 e1 z( j2 A$ x0 z5 F, I/ lof residential construction.
. l; b7 Z4 t; s$ }5 zTo examine the degree of overbuilding, we employ a
5 T0 w( t1 ]' {4 D& o“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
/ q8 z$ x& |  o$ ?2 ~. efundamental-justified level by about 12%. Although new
5 r! E: q: A& e9 N% sunits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
6 P/ U' [- [0 R6 C8 Ialready witnessing surges in their unsold new homes at the
( `. w! m1 k( h1 M1 h& V9 Wvery time that the resale market has swung into strong
buyers’ territory. Homebuilding in the Atlantic provinces
has been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
. N$ Y' G' J- K5 G' EQuébec shows signs of strain – especially given the
& e8 X8 ]  N; v2 j3 tstrange 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
, k* M  [6 b6 i, Z- J; jrates. While Ontario homebuilding will reel from a
# X& H. K' b! j* `cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
5 C9 |% N  M% |- _: Q9 S( u( |condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
0 y% p0 `8 k" m3 Dconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
# w; v% x+ Y6 A- Zcyclical factors would indicate, condo inventories could
2 a. {- z! C" n' a5 ]& vspike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
9 m$ s  {' C0 Manticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
1 {: P5 a2 T* e1 j6 m% a+ p2 {years, which, along with improvements in affordability,
: q( e. X# \  t! L/ h( {will alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
/ A8 T4 l- J+ Z5 S  @  gMARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
4 A- N6 g9 k  A. K, \  q; r416-944-5730

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

宋兵乙