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
9 [- @3 U  w8 U1 K$ W1 Kunsustainable levels of building. Our view is that house
8 L; T  o& E4 N8 s, Mprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
overpricing 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.
3 D% q+ p3 d! L1 P; ~6 n- oBy “overpricing” we mean that prices detached from
0 W8 a3 `* C2 j+ Q8 x! [7 Atheir fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
& I" P; a  l4 rboth a cyclical downturn and a return of house prices
5 p5 y3 B6 [. b' [to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
" K1 r/ Z+ B# l* f  g  m4 j. Rwhere builders accumulate excessive inventories. Although
0 I0 j$ ^4 @( _* r, d8 w4 |0 Gthere is evidence of both types, we contend that Canada’s
( f  [7 K3 L, n' o, T: F8 p“overbuilding” was mainly of the first type, where
homebuyers pushed homebuilding to an unsustainable pitch
4 [: C4 X5 z* ^# |% qthat is now being rapidly reined in.
* N: z3 R0 C& o# ]6 s* vWhile most markets won’t face U.S.-style overhangs,
8 e8 ?$ H( l& g" Zthe construction of too many new homes over the boom
means a deepened slump. This overbuilding will likely weigh
1 w6 V0 G# h% mon markets over the next few years. Even as Canada recovers
3 w+ _. E) _& ]- u% Y5 d" Ffrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
) o; s4 _0 O- O& G, L; j% C) a) ^dampened, owing to this structural weakness. Construction
0 d5 J; ~0 _( E- b3 A& L3 Xis now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
8 d8 h5 r% w0 R2 d" g! ^( _residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
* T* w* B1 X6 R; K0 U7 Din the fourth quarter.
To quantify the degree of overpricing and overbuilding,
6 C* n6 Q4 x9 \; ~$ iwe first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
4 O1 y6 e. P4 U; }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
& }" G% i! s: ~+ y3 Iregard housing prices and household formation as the drivers
9 _" J! F9 s4 |of residential construction.
To examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
2 x3 D( ]/ e& k( L7 d* N# c! x4 K( Rwould have occurred if housing had been priced
- c+ _9 A& Q4 x5 ~8 K% ]optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
# R0 K% `. K( X( Y1 ?many houses at prices that exceeded fundamentals.
* A$ H. p* k* ~Regionally, we see the greatest strains on the Prairies,
6 i  v) N; {, X6 V1 i( |where 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
buyers’ territory. Homebuilding in the Atlantic provinces
8 a9 H! _) h8 J) chas been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
2 J, G/ J+ B/ ~5 j$ t' t2 @Québec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
% B6 u& @% i, x6 `0 W  WMontréal – but recent building has been relatively balanced,
# e& I: }9 b4 Kgiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
6 C$ R# I. z# B/ u3 H, S% j: Hcyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
  f1 n+ k2 @* Y% s) D* Ocondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
2 i9 @% W8 \& n; G- s1 qreach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
- l* V. @1 h; h4 f9 v0 oresidential construction in B.C. will definitely droop, we
2 d0 c- U: C& Y$ |2 |" u  Danticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
' ]1 d9 ?' S- S+ M1 byears, which, along with improvements in affordability,
( Q: G; ~+ I3 _  H* W5 \6 T5 A& [will alleviate some of the pressure from overbuilding.
+ @% B% i, d) _0 K8 p2 Y4 g  M% o1 lOVERPRICED AND OVERBUILT: CANADIAN HOUSING
4 F: r3 C9 E* G7 e1 DMARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
" `5 Q) `1 u3 ]$ \9 c416-982-8063
8 z9 g9 W2 O( u" _& w8 CPascal Gauthier, Economist
416-944-5730

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

宋兵乙