TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
2 ^+ ?# s% H& m0 o3 I$ a: @from 2002 to 2008, unsustainable price increases drove
unsustainable levels of building. Our view is that house
1 N; J! i! F! pprices exceeded the value of housing that was justified by
$ Z% y, A% O& B! D& Q8 wfundamentals by approximately 9% nationwide. This
- [- v. b# `8 q+ r4 R4 Loverpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
8 B( D5 m- \6 Z12%, an excess that was exaggerated in the past
" v- [2 B3 S# m' z1 zthree years.
$ ~3 e7 g0 a1 M3 y/ pBy “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
9 m" q1 c" ^2 D# Uboth a cyclical downturn and a return of house prices
. z9 c. k" M, e9 B3 N8 P+ Q: k; Ato fundamentally justified levels.
' }2 u6 ~6 M2 q/ K$ x! G5 RWe consider “overbuilding” of two forms: “demanddriven”
# ]  N& T! P0 p& Fwhere homebuyers buy up too many houses and
7 ]3 v' l! P8 D; Othat this demand cannot be sustained; and “supply-driven”
$ R: J  ?2 ?6 n9 v: L3 W' ?where builders accumulate excessive inventories. Although
5 S1 T' L1 B2 t$ s/ ^* Ythere 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
that is now being rapidly reined in.
! L. t7 ]0 Y+ A: uWhile most markets won’t face U.S.-style overhangs,
the construction of too many new homes over the boom
" C2 }0 p: D5 z* s9 @+ p: `0 smeans 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
6 u/ L  L1 q' i/ L  O) Ois now undershooting fundamentals and we expect this
9 Q5 c5 F/ k  p8 r: x, Wto 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
( T; q- R$ c. Iin the fourth quarter.
To quantify the degree of overpricing and overbuilding,
1 P; A2 b7 s8 \! Iwe first develop an empirical model, based on long-run
fundamentals of house prices and housing starts in each
, w3 e) `% g+ ~5 |" p  Tprovince. 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
1 B; A2 s; b- r" {! u$ @8 hregard housing prices and household formation as the drivers
/ ?* L! m0 ?6 xof residential construction.
1 F; {1 w: e' }. g1 u: RTo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
$ H1 S( m, q4 g& }8 p! I1 E/ xunits 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
- K; U- \4 e7 e1 Apopulation inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
/ x5 n/ [* B* [# L  V3 Mvery time that the resale market has swung into strong
  i! J3 O. a0 C3 P' c0 Z# ?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.
) W" d" D, I( _; `9 FQuébec shows signs of strain – especially given the
( {: s* f, L4 d0 @5 L3 pstrange accumulation of unabsorbed multiples on l’Île de
* h% m$ k( B& R0 V4 TMontréal – 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
, e2 S  d& m, q# a" m1 }" I' P% ~cyclical 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
( y- `4 l3 m" h( o$ mreach completion during 2009. If absorption rates fall, as
. T& S- i1 r. f1 a9 P1 bcyclical factors would indicate, condo inventories could
9 E' {( {+ [2 n# T4 _spike severely – particularly in Vancouver. However, while
, [( y( I+ d0 w2 v$ ?7 f2 Uresidential construction in B.C. will definitely droop, we
anticipate that the West Coast will continue to benefit from
inter-provincial and international migration over the coming
years, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
, }. W* [4 x6 e3 EOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
/ j8 `+ t) i! oGrant Bishop, Economist
416-982-8063
Pascal Gauthier, Economist
) j9 g7 y( e- a4 s6 G$ c- ?* c416-944-5730
: g8 n# u/ \* S6 p9 l: {
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙