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
: X4 |% z8 h( ~+ y) w: }1 F: D$ J7 funsustainable levels of building. Our view is that house
1 u' O: \) U* X" ?4 m5 U4 tprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
# D) K/ I& A! ]: k) T! G# koverpricing compelled a level of residential construction
. Q2 L* _2 M5 r( k- gthat exceeded its fundamental-justified level by approximately
1 f) k% j3 n* R! J0 x! U12%, an excess that was exaggerated in the past
three years.
By “overpricing” we mean that prices detached from
1 u4 I" S, A- I% e3 dtheir fundamentals, as witnessed by a steep erosion of
9 a! I8 `  l8 }0 f( `+ {9 j+ vaffordability. The current unwinding of house prices reflects
2 k; [. l+ X/ ?/ V- h2 ~both a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
( ?$ {- N% u, Q, Nwhere homebuyers buy up too many houses and
. r; T& }4 e4 V6 {6 [( A. mthat this demand cannot be sustained; and “supply-driven”
9 f6 A" l6 h4 Q* }where builders accumulate excessive inventories. Although
there is evidence of both types, we contend that Canada’s
; g8 w# w: P+ ^# g“overbuilding” was mainly of the first type, where
* ~5 \# D+ }" ~' s" F  s) `homebuyers pushed homebuilding to an unsustainable pitch
4 Q6 G- a6 X3 K" ^9 x; fthat is now being rapidly reined in.
& x$ a- H1 }' \* t7 n3 r$ Q4 qWhile most markets won’t face U.S.-style overhangs,
/ _' ?3 M0 ]& r$ bthe construction of too many new homes over the boom
. N! q/ A2 Q: n3 A  y1 o  W  Xmeans a deepened slump. This overbuilding will likely weigh
' C, Z" g5 }5 y; j- ton 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
/ ?3 X. s  h2 ~dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
! {/ Q1 L( T3 R) @to persist over 2009 to 2011. We anticipate that nationwide
" p; b; ~) C% L. V5 ~- i2 `) Sresidential construction will fall further to around
- X0 b" V0 i* T125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
To quantify the degree of overpricing and overbuilding,
we first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
! s3 B1 s+ Y5 s3 D" R# f( {province. Affordability is the key concept behind home
values since house prices should track incomes over the
% {& M6 ]2 O8 G7 u' y4 M# S# @  Zlong-run. Since homebuilders build to meet demand, we
) g8 R1 i% P2 i2 h, I0 j8 aregard housing prices and household formation as the drivers
of residential construction.
, ]0 o$ v$ t: A$ ^  @: ?To examine the degree of overbuilding, we employ a
3 W4 n3 |$ |; {6 }/ [4 }“counter-factual,” asking what level of residential construction
) e% r9 V; H3 g, ?would have occurred if housing had been priced
5 H8 ]5 o1 g8 k1 u( Loptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
' K' p$ Q& ~* d: qunits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
population 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
buyers’ 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
% o0 `& D& O8 {: H/ Zstrange accumulation of unabsorbed multiples on l’Île de
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
! l; z8 ^4 r- `: |1 o; Dlimited – with the important exception of the Toronto
5 n/ A6 ~8 b* V% q7 E2 Dcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
construction mean that record numbers of condos will
% [' m& t1 u5 l* Z4 F9 o# O2 q3 v/ zreach completion during 2009. If absorption rates fall, as
" {0 r5 r7 M9 E7 q1 X6 G3 Qcyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
& p' c( R$ l5 X9 j2 sresidential construction in B.C. will definitely droop, we
& J" `, C) S% }" d) qanticipate that the West Coast will continue to benefit from
% z6 ]$ X* r; t- Hinter-provincial and international migration over the coming
years, which, along with improvements in affordability,
9 J. D/ r% K& Y8 K  V. X) D# x; ewill alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
1 n. Q; a* D1 \% G; ^MARKET RETURNS TO FUNDAMENTALS
6 |2 T8 o% C4 h# T& H6 _Grant Bishop, Economist
4 y+ ?7 k3 Q6 `9 M/ k& o9 M416-982-8063
8 T& y" N7 m& L- w2 zPascal Gauthier, Economist
+ k0 N. N; `; a: w416-944-5730

0 f2 _; l) }+ w$ R* \http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙