TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
! }5 l/ S% ]# J$ `from 2002 to 2008, unsustainable price increases drove
unsustainable levels of building. Our view is that house
/ ]0 g" f) W8 v& c7 k: f6 Z, `0 s: Lprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
% `* z2 ]- P- q5 Uoverpricing compelled a level of residential construction
6 G7 s* g5 i5 Z2 i0 zthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
  U8 J) w8 {1 h& E) ABy “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
to fundamentally justified levels.
. E6 T( Z9 M1 I+ Z* CWe consider “overbuilding” of two forms: “demanddriven”
* q7 J2 `, Y# K; E% R5 d- Y, J9 wwhere homebuyers buy up too many houses and
! \9 C7 m. K3 s3 L2 q8 _that 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
# {7 @0 a# M, o4 [- O. T* O“overbuilding” was mainly of the first type, where
4 m0 U5 ~6 |' ~homebuyers pushed homebuilding to an unsustainable pitch
" P$ }9 R: r; p9 N, m7 wthat is now being rapidly reined in.
" Q3 i  t( ^+ n" o; x$ ]While most markets won’t face U.S.-style overhangs,
the construction of too many new homes over the boom
( h8 @6 k; Z% Cmeans 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
; Y; k! G9 z* R) R+ Sremain choppy and new residential construction will be
9 h7 E' l: I, i7 Tdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
8 ^! w9 y8 y) H/ Q" }to persist over 2009 to 2011. We anticipate that nationwide
residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
4 z; C. ~6 g8 s" P. E( R/ B) _( Sin the fourth quarter.
To quantify the degree of overpricing and overbuilding,
) T0 T# V/ Z8 A8 Y5 x$ dwe first develop an empirical model, based on long-run
* g% c/ J0 ~9 z/ Wfundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
- \6 `- `6 c3 D+ [# nvalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
& c& o7 o+ i+ l9 R6 A9 {regard housing prices and household formation as the drivers
of residential construction.
To examine the degree of overbuilding, we employ a
2 Q1 Z6 W8 |0 x7 v“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
, z0 i, m- X9 @, |fundamental-justified level by about 12%. Although new
2 ~# D# @5 \5 _3 c; funits were being absorbed, homebuyers simply bought too
3 {, H1 ]$ o" zmany houses at prices that exceeded fundamentals.
& R3 l5 G( U8 Z/ A4 Z& Q/ h0 q5 Q8 Y9 ERegionally, we see the greatest strains on the Prairies,
5 \1 x! z- T' Q, [& Mwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
" G, q" m, s$ [( Z& D& overy time that the resale market has swung into strong
5 M: v1 g6 S$ |& h- }! Z% Ybuyers’ territory. Homebuilding in the Atlantic provinces
has been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
5 @0 P: c3 ?' [7 W* OQuébec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
. v0 R- g6 x" l, u$ T/ {& MMontréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
' Z+ z( A/ p2 k& [* L1 e1 erates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
9 I& x4 y* j2 u& x* Q7 @high levels of apartment-style units presently under
- J- E9 I3 C2 W  Pconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
0 ^, Q% G# q0 F1 U4 N/ V2 qcyclical factors would indicate, condo inventories could
  ^: Y" a7 p5 R- M2 D# }) uspike severely – particularly in Vancouver. However, while
0 o4 _: U5 p; u: _residential construction in B.C. will definitely droop, we
# W. r  n( U' M( {anticipate that the West Coast will continue to benefit from
" v9 z! |  J3 A8 Cinter-provincial and international migration over the coming
years, which, along with improvements in affordability,
% q# e9 Q+ o( J  [( l6 cwill alleviate some of the pressure from overbuilding.
: K- M" O  i/ I( rOVERPRICED AND OVERBUILT: CANADIAN HOUSING
6 m( x+ w4 h! |/ Y# ~MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
/ r6 ^3 m. I& p' {( q' m! `4 r8 ?416-982-8063
1 l& K8 I9 N9 k, C" G3 J8 VPascal Gauthier, Economist
* v  ]3 G; D; [$ o* R6 X416-944-5730
& j+ m( d9 Z7 Q# Y
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙