TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
+ K" S( B/ }/ M/ |  J7 @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
. s& s& q9 i' _4 Jfundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
: p: n& h: x6 x! P' dthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
! K, v/ m7 D0 A% S* y6 GBy “overpricing” we mean that prices detached from
/ {+ g( O+ ?+ u+ s9 W2 Vtheir fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
! _. S/ l. _' s0 Y7 wboth a cyclical downturn and a return of house prices
+ K$ C* V" l" [" kto fundamentally justified levels.
* T4 Y0 p5 I: W: V; q( I  rWe consider “overbuilding” of two forms: “demanddriven”
+ V2 }# L" R" U. L) [where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
3 x3 k  C- Y% N$ [; N: swhere 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
9 u- w! v9 t. mthat 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
means 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; U8 D' D2 t6 [  f* v0 w" Iis now undershooting fundamentals and we expect this
1 J8 D+ O* P, Y. M! A2 Eto persist over 2009 to 2011. We anticipate that nationwide
+ Z4 |- W8 C$ r" n0 X* R: V; Tresidential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
6 s! V# t' ^( l, iin the fourth quarter.
To quantify the degree of overpricing and overbuilding,
# d3 ]! c/ n4 X# K( O, H  H/ m, Swe first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
/ O; W, P. t. U, t5 E. Y! Dprovince. 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
: {$ i, A! ~  j; |' yregard housing prices and household formation as the drivers
- h8 C9 G( Q% v! ~! y$ c" T6 n9 D2 nof residential construction.
To examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
- c' ~3 U( O5 _  U; G6 l1 W, N  b' fwould have occurred if housing had been priced
+ C3 z3 w% o, x, J$ Aoptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
9 N! O3 c# V: j$ I% }units were being absorbed, homebuyers simply bought too
- p. c/ g* o0 [8 C2 D7 ^* w' gmany houses at prices that exceeded fundamentals.
) Y! S9 ^$ y: }+ P+ vRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
1 N7 B, @8 O+ c: J' Spopulation inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
- B! W' I" X: P& `1 w' A; {very time that the resale market has swung into strong
1 @6 |5 X( ?& C* d* y5 rbuyers’ 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
) P8 s1 L1 _" o  I/ kstrange accumulation of unabsorbed multiples on l’Île de
4 k- k: X3 y& A' kMontréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
' K# U; m, O; C9 L- p; j% grates. While Ontario homebuilding will reel from a
) I8 W& n6 m1 ?& S" R8 Kcyclical downturn, the degree of structural weakness appears
3 b! @8 n8 U+ B1 J' zlimited – with the important exception of the Toronto
; d1 e) C# w. j6 ^) M" }, M& Fcondo market. Both in Toronto and Vancouver, historically
6 x) Y' {/ L/ [7 ^3 k, T1 K# {' Qhigh levels of apartment-style units presently under
construction mean that record numbers of condos will
/ \7 s  H3 g; j1 sreach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
! s* U7 U  u) f2 e! Jspike severely – particularly in Vancouver. However, while
5 s- N, Y( I+ y) w0 ~residential construction in B.C. will definitely droop, we
8 C4 B- o3 L1 x& @1 S% L, Oanticipate that the West Coast will continue to benefit from
) b. n/ D- @. Q9 d: ?8 minter-provincial and international migration over the coming
! ]' E7 c$ S8 L' N* W, B, G2 tyears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
1 N7 o3 E! ]1 m0 |+ d* JOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
& x: Y% u! }# X' j' W4 J' r: KGrant Bishop, Economist
416-982-8063
/ x, @4 O. Y" H! _0 y# VPascal Gauthier, Economist
416-944-5730

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

宋兵乙