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
0 i. c; o' D9 u: G& S1 o, M2 _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.
By “overpricing” we mean that prices detached from
# s4 T* a1 C1 |1 g( i* z, Z5 `* s0 D. xtheir 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
2 r0 d8 P2 H( O& b4 Qto fundamentally justified levels.
: @+ J1 q2 f$ Q2 T# wWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
; S7 e  n* e( _3 g0 X  Y( ]there is evidence of both types, we contend that Canada’s
7 k  s# S9 Q( e8 x“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
$ d2 L9 `8 ]# y# C8 Z. dmeans a deepened slump. This overbuilding will likely weigh
9 H9 u. ^# d4 f8 K' Mon markets over the next few years. Even as Canada recovers
. `9 I- S5 ^" {% nfrom the cyclical downturn, house price growth will
! w4 S7 u) M0 C9 m$ a. Xremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
. S& v. Y$ w9 P1 U6 w4 K) F+ [to persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
3 @2 l  `& b4 M' S0 P  K125,000 starts over 2009 with a trough around 115,000 units
# m$ C! {+ f1 b& [% Gin the fourth quarter.
7 }" S0 [! q+ V* K: @( h. bTo quantify the degree of overpricing and overbuilding,
* [$ K# q( c0 ~2 w# qwe first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
% C* P. C2 q  J* t" D( c2 h5 o# @values since house prices should track incomes over the
. f, P' l6 s, e" ^! U1 llong-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
, l7 z& s+ P, H, D8 b6 ?“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
- L: W" U) x8 V7 Z0 Xfundamental-justified level by about 12%. Although new
2 o# z4 _) `2 S3 bunits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
2 P9 q  a3 a$ P5 r+ Y" vRegionally, we see the greatest strains on the Prairies,
2 h" Z. P  ?8 Z3 c9 ~) {where housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
+ x% P7 q, p+ V; Z( h9 u+ |1 F- Ealready witnessing surges in their unsold new homes at the
) p0 j% X# z5 y/ [; o5 ivery time that the resale market has swung into strong
buyers’ territory. Homebuilding in the Atlantic provinces
3 i' D3 d  {$ ?has been relatively balanced but, while not plagued by structural
6 C3 V  U, k  Kweakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
) \8 r; V9 b8 X1 Z1 ]strange accumulation of unabsorbed multiples on l’Île de
6 `+ F+ j, L1 @: G% a3 j4 e4 e- [- eMontréal – but recent building has been relatively balanced,
& A  y, |- S1 d/ R0 bgiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
% k& O; D$ a) J8 V8 g' y3 pcyclical 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
reach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
% v" Y  H. [, c& [- I9 @residential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
, {( L+ {2 c9 g8 }inter-provincial and international migration over the coming
7 s! k6 x' F# O) M% [2 Jyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
. }* P7 E: T9 V3 O; Z* QOVERPRICED AND OVERBUILT: CANADIAN HOUSING
: U) \  i4 ?# z. _MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
9 P- y0 f+ E% B3 O' `) P. C416-982-8063
" J1 i/ B& r+ z7 y4 e  w  {6 \6 gPascal Gauthier, Economist
2 u- X) s: i% T' ?5 y416-944-5730
+ I6 x! i2 m/ z* H& O
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙