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
unsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
, U& z$ D& n3 e6 q$ Yoverpricing compelled a level of residential construction
) r' @; `" n4 Q/ Ithat exceeded its fundamental-justified level by approximately
( f( i) _- H% G! T12%, an excess that was exaggerated in the past
" U. p5 G8 r& ?  N" C" h& Vthree years.
2 b& a0 e) X- T2 Z( g& g1 L8 ?0 J/ lBy “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
, a4 o& g/ l; Rto fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
& U  g: V9 i9 ^8 I( wthat this demand cannot be sustained; and “supply-driven”
& ?  u! C7 X2 o" l% @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.
, A& O' _2 a4 R# vWhile most markets won’t face U.S.-style overhangs,
the construction of too many new homes over the boom
! i2 b6 G# _. z2 ^  {4 P0 U5 J8 Ameans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
$ e# V1 }4 ~. jfrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
! A- ]" ~" z. J. h6 s+ gto persist over 2009 to 2011. We anticipate that nationwide
) Z8 {0 l7 R3 d. b# fresidential construction will fall further to around
$ M' `* i# r. p6 V125,000 starts over 2009 with a trough around 115,000 units
/ S& D  L" z# z. {. z% hin the fourth quarter.
To quantify the degree of overpricing and overbuilding,
7 r( a1 W+ S' v- e7 F% Wwe first develop an empirical model, based on long-run
. s; s$ T4 q+ wfundamentals of house prices and housing starts in each
7 L4 C0 `# T$ y3 h+ W6 Z4 h& yprovince. 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
regard housing prices and household formation as the drivers
of residential construction.
' Q  _3 n5 e# ^3 nTo 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
1 G2 E. l! I$ h+ `fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
, `8 x2 a) S8 U" Kmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
; c" L  m+ ?, a/ d. Q7 ?& E. vwhere 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
- E' E3 R' I( [: l4 ubuyers’ territory. Homebuilding in the Atlantic provinces
  h/ D- _* o1 H. b9 U9 j. @/ Ahas been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
0 Y, k3 t/ t: u& a- [/ t' QQuébec shows signs of strain – especially given the
! U/ _( b+ q2 O8 i9 j( D3 C' astrange 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
rates. While Ontario homebuilding will reel from a
& ~) ?9 M) x2 H0 V+ ~cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
8 \5 O. B+ d  O( M+ Zcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
' ^. B+ p6 V1 D; N2 Oconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
0 N& `6 R/ [2 ?5 \: H0 ~: Uresidential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
) V: _( r( N8 Y' L5 V, V2 ?years, which, along with improvements in affordability,
. y1 ]! [" s  Z0 L& Qwill alleviate some of the pressure from overbuilding.
4 y) H9 k2 Y! C0 a4 SOVERPRICED AND OVERBUILT: CANADIAN HOUSING
8 c/ C# G' d8 i' C" dMARKET RETURNS TO FUNDAMENTALS
9 N# C  z0 x5 r8 i7 PGrant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
; w6 E) Z7 F! O/ {) Z416-944-5730

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

宋兵乙