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
0 X: q6 X' A9 G7 |prices exceeded the value of housing that was justified by
" ?& N; v9 _+ k) vfundamentals by approximately 9% nationwide. This
( ?" x) [- Z$ m, Y* y8 j( [4 ooverpricing compelled a level of residential construction
' b3 C( f) r. B& _. |* Z3 tthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
+ Q* n" G8 {& q. t- U) mthree years.
By “overpricing” we mean that prices detached from
% t: t0 M; L8 f5 N5 `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.
We consider “overbuilding” of two forms: “demanddriven”
1 g% e  f0 [" Y% \9 l. ywhere homebuyers buy up too many houses and
9 q$ d" R  |. G! A: n, Y- Tthat this demand cannot be sustained; and “supply-driven”
8 u1 D4 p* i8 x' e, `6 R6 ?$ Z: Swhere builders accumulate excessive inventories. Although
1 `: v( S3 J( m% q7 mthere is evidence of both types, we contend that Canada’s
. Y% W4 w" t: p5 {' _“overbuilding” was mainly of the first type, where
) P' w% F1 k5 `8 Q% G  p8 Rhomebuyers pushed homebuilding to an unsustainable pitch
% S2 }( U% t' X( s' v. j; othat is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
2 e- Y9 J0 ]& ~, jthe construction of too many new homes over the boom
9 U. p* c" {' h; X7 i* V6 ^means a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
0 _( K* N5 E& Q# g7 e, Nfrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
0 T+ S: h3 z  E( L* l3 Ois now undershooting fundamentals and we expect this
5 i- n* O; R" q; N0 C6 l! x* L* Sto persist over 2009 to 2011. We anticipate that nationwide
. e( r$ x* i4 A* I! L- uresidential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
5 `$ ?, V. q; _) r5 ~1 O  p% GTo quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
. S( H: H# X4 D- qfundamentals of house prices and housing starts in each
9 }# p# o% z2 Y7 wprovince. Affordability is the key concept behind home
values since house prices should track incomes over the
* r0 J3 m8 N: k7 q/ ]long-run. Since homebuilders build to meet demand, we
" n2 n9 c6 q7 I, Bregard 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
* S! v6 s% B' n) Poptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
' O( ^+ Y, P4 Z& ?3 j# m* r1 E, Cunits were being absorbed, homebuyers simply bought too
1 j2 A4 o" f6 e/ e% l4 t! R% Vmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
+ Y+ H7 W1 r5 pwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
( f* Z: E" U# ^* Tvery time that the resale market has swung into strong
$ s: W9 x# {' Z) E- ebuyers’ territory. Homebuilding in the Atlantic provinces
: D1 ^; w# y: f. C) w! l# Rhas been relatively balanced but, while not plagued by structural
6 `& \8 k. N- cweakness, will be singed by the downturn nonetheless.
* X0 q  U. L% ~# T3 T, P: ^Québec shows signs of strain – especially given the
+ p* @7 z0 H; u$ v$ Q; r( @strange accumulation of unabsorbed multiples on l’Île de
7 Z; W9 N0 z) C4 ^* n1 N5 cMontréal – but recent building has been relatively balanced,
: C5 f. a3 |* {0 P8 \9 ngiven the province’s history of under-building and low ownership
) e, _# k+ {) }9 {: S3 F  Brates. While Ontario homebuilding will reel from a
1 W/ h: Y! m; I- Ccyclical downturn, the degree of structural weakness appears
  `3 N( x; }+ `8 |# ^: c4 Glimited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
' U4 }2 l0 ^8 L% @' shigh levels of apartment-style units presently under
construction mean that record numbers of condos will
0 M6 }8 I) z! q8 Z$ n" F8 F- C% ^reach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
9 j4 e4 j0 d. Xspike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
" }( C! l+ [1 ?0 L+ K, {anticipate that the West Coast will continue to benefit from
& ?$ K. ~, k( k- }9 Ointer-provincial and international migration over the coming
7 ^* a) d+ u4 @/ p0 m/ eyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
: k+ [2 K+ u  x' L* r6 r) SOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
* O) [7 {7 ]2 |Grant Bishop, Economist
416-982-8063
; B, f" c, p3 v& Z' q6 BPascal Gauthier, Economist
9 \( Q- O/ i! o6 m2 `- s# ?416-944-5730
8 s- T5 x! r, T  I- W3 T( T) l
" ]1 a( S4 k2 ]9 x) Thttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙