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
2 x! _3 H. r5 C1 m/ E$ Hfundamentals by approximately 9% nationwide. This
/ q( g9 q  _+ B! |/ v6 p( Aoverpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
5 p- w, M/ J; _three years.
By “overpricing” we mean that prices detached from
9 d; k) c! i$ ^  \+ M  C. ctheir fundamentals, as witnessed by a steep erosion of
$ a$ ?. H5 H2 M2 V% @/ naffordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
to fundamentally justified levels.
8 I$ W9 a& T$ K, Q; {/ s" f" B7 qWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
0 f: }% G1 S& h; X( ethat this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
; W. i' H" D* P7 q0 ?- f7 k9 @( l5 U, Mthere is evidence of both types, we contend that Canada’s
& ^9 z5 g0 D4 `1 y3 m“overbuilding” was mainly of the first type, where
  {! T/ _% p" a* C& A; S) G: fhomebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
3 G  X# H0 n: [/ s; M3 T& U3 I5 LWhile most markets won’t face U.S.-style overhangs,
5 j2 j% S8 W% m9 B9 u6 jthe construction of too many new homes over the boom
- n$ u' b: ?# n) Bmeans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
from the cyclical downturn, house price growth will
remain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
. l! Q' i* K  \8 T" E4 Vis now undershooting fundamentals and we expect this
! G0 p: }. q8 y* i. B" e# p+ W# |' `to persist over 2009 to 2011. We anticipate that nationwide
9 j& `4 u0 L5 h- X5 iresidential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
$ K' r# m  D7 \- @7 B4 [, MTo quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
' h3 |! F1 t: Qfundamentals of house prices and housing starts in each
+ X: y8 O3 ]* P' J' ~province. Affordability is the key concept behind home
values since house prices should track incomes over the
" }' {  \1 z( D: j; ?long-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
of residential construction.
To 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
fundamental-justified level by about 12%. Although new
  z; g0 Y( L$ a0 ?! }4 xunits were being absorbed, homebuyers simply bought too
' G! V+ {' v, B) Pmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
7 {/ b; Y! T" ?# _* Y' r- i# Y' d; Upopulation 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
! n' \, n# x; O, P. Tbuyers’ territory. Homebuilding in the Atlantic provinces
has 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
7 ~0 `! n' O1 U/ X2 r% a" @strange 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
/ Z2 i9 L" Y% R$ \cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
, f, V7 s% H$ C4 `1 [# x4 k% Preach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
" e6 _7 n/ D* c2 F/ t& B2 qresidential 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
7 w* |4 V' Z7 Nyears, which, along with improvements in affordability,
+ Z' [" E. \: Q% }: Iwill alleviate some of the pressure from overbuilding.
5 p" c& L4 e8 m/ E) N, r& _2 eOVERPRICED AND OVERBUILT: CANADIAN HOUSING
! N3 h: f! ~. W# J- l+ e" I# j4 oMARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
0 P& E$ s, S. b" F& J7 {416-982-8063
8 C" P4 Y, q5 F3 R3 i! L. APascal Gauthier, Economist
/ j/ X2 n6 D  L$ h1 Q7 m416-944-5730

% S- Y$ @5 y: fhttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙