TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
  ?, ^( D5 b' U: Yfrom 2002 to 2008, unsustainable price increases drove
  R. ]4 `* R, }; t1 Q- C5 sunsustainable levels of building. Our view is that house
prices exceeded the value of housing that was justified by
, M! H# K! c1 |& b; kfundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
5 J) J, J3 s4 Dthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
& X0 F5 S/ p- |+ S( ?three years.
2 o4 o7 v# K2 F9 VBy “overpricing” we mean that prices detached from
; |9 V! A) Z) L! l: Otheir fundamentals, as witnessed by a steep erosion of
5 M2 x% ]( E1 x4 I. w* q* naffordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
' H# |% X, `8 Y- N& `3 n. z) c( Eto fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
) O! Y3 t7 I9 `+ ]" D; ewhere homebuyers buy up too many houses and
0 H$ P6 u5 F6 ?) Y& l% J: hthat 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
homebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
the construction of too many new homes over the boom
: A+ Z6 K% g6 w8 Q1 Imeans a deepened slump. This overbuilding will likely weigh
6 c# J  k3 O( i! _, c  kon markets over the next few years. Even as Canada recovers
" X  H. x, e8 @* Ufrom the cyclical downturn, house price growth will
6 I) K, b' o5 r6 C5 Cremain choppy and new residential construction will be
! C! S; y% ?0 G1 Zdampened, owing to this structural weakness. Construction
$ E' L9 |( x7 p* d( z4 H. ais now undershooting fundamentals and we expect this
  ^) U: B( w' r5 sto persist over 2009 to 2011. We anticipate that nationwide
: |5 f, k2 @& L8 X8 N" t. {residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
& j, G6 Q8 o3 P1 M" W- i9 H0 \; xTo quantify the degree of overpricing and overbuilding,
& D) ~' q/ z  H- @/ P/ r1 z$ Ewe first develop an empirical model, based on long-run
$ m! X& h. ?' h- A7 ]1 u- }fundamentals of house prices and housing starts in each
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
8 }; M! b5 F: V5 H6 h- T" Iregard 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
; H7 }/ w4 f& h0 Lwould have occurred if housing had been priced
$ o4 c& {  N) ^' moptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
  Y2 d! ~- Y+ n4 a5 q4 |/ U' k- k8 Tmany houses at prices that exceeded fundamentals.
; d7 P2 H7 w/ _/ j& o! ORegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
3 }' b) r% g4 ]9 X: Wpopulation 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
) B' k. a& Z3 N& o" mbuyers’ territory. Homebuilding in the Atlantic provinces
3 H2 n! ~  |# A- y1 s7 Ghas been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
+ u! [( w: G6 J, W: c( HQuébec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
! G, {9 W# F- V. H- t3 O* ]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
cyclical downturn, the degree of structural weakness appears
" |% m& c% t' blimited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
8 H( c! n5 k1 v" A* ihigh levels of apartment-style units presently under
7 x, F% R4 H/ Cconstruction mean that record numbers of condos will
) @7 ?/ W1 [% q4 m. Ireach completion during 2009. If absorption rates fall, as
1 i% F3 K! B/ f! x/ Ncyclical factors would indicate, condo inventories could
- A& K9 [0 }& z* w0 }spike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
+ l& y7 |/ ]# E% k1 X( danticipate that the West Coast will continue to benefit from
& I" o. C9 D4 Z0 Ainter-provincial and international migration over the coming
years, which, along with improvements in affordability,
# U" Z- G, O, ~3 m# }will alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
416-982-8063
6 f7 a* L( C. |6 P2 ^  G; c) tPascal Gauthier, Economist
1 i- m& a+ V% n416-944-5730

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

宋兵乙