TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
) g4 [" L7 H7 B$ y7 c) Bfrom 2002 to 2008, unsustainable price increases drove
) w9 X! f$ h. K, [0 `, Tunsustainable levels of building. Our view is that house
' q9 @. v+ K% G6 b" L5 {* ^" Nprices exceeded the value of housing that was justified by
6 J; U4 D' x. b( ^fundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
) r4 G- [( Q, ^; O4 {3 I7 |0 fthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
3 |, E* A1 d! y$ Ithree years.
By “overpricing” we mean that prices detached from
; b6 v& K. X5 S6 w" i+ c  Vtheir fundamentals, as witnessed by a steep erosion of
/ p4 A) `4 c% |  daffordability. 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”
where homebuyers buy up too many houses and
2 J5 u6 t* t; Uthat 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
* l; Z" h; d0 e1 }8 U9 L- x6 ~) s“overbuilding” was mainly of the first type, where
) q) \# u5 @: Q, G9 S% C9 yhomebuyers pushed homebuilding to an unsustainable pitch
1 e6 T) ~7 @' x2 |/ |that 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
5 g+ K$ h9 q2 e. P: b+ B. T$ zfrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
" b/ `. x; g+ \- ~- k) cdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
+ \  `# K) K1 I/ k6 ~residential construction will fall further to around
125,000 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
3 V8 p2 r1 h3 mfundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
values since house prices should track incomes over the
1 t) N' b  h/ X: D/ m3 l3 Tlong-run. Since homebuilders build to meet demand, we
& p7 p% Y# L; p6 J) J" z* L5 qregard housing prices and household formation as the drivers
* e# k7 _/ S+ S( e5 Sof residential construction.
To examine the degree of overbuilding, we employ a
  W8 Z8 m! H( C. q! g“counter-factual,” asking what level of residential construction
! }  s$ r. g4 R9 ?. @2 q& wwould have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
0 w* P/ u8 S, X  Aunits were being absorbed, homebuyers simply bought too
2 I: H/ `( Q: Z& P2 Gmany houses at prices that exceeded fundamentals.
* ~( ^1 w! z% pRegionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
; g$ y' V$ }5 N$ g3 dpopulation 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.
+ E; S) n0 v5 F6 d" m9 n/ `' \1 ^Québec shows signs of strain – especially given the
# F. `1 h6 \# k  wstrange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
& q$ I0 K" Y! A0 |given the province’s history of under-building and low ownership
9 N, y8 V1 v) }: Q5 ]rates. While Ontario homebuilding will reel from a
- t+ r+ B% W; F, ~+ m- k4 f( q0 vcyclical downturn, the degree of structural weakness appears
4 s& D. S6 s0 A% c; hlimited – with the important exception of the Toronto
" A8 r5 B8 m- Y3 O- y. Y0 Gcondo market. Both in Toronto and Vancouver, historically
/ B3 ~! M  U  P! }# X' D: Uhigh levels of apartment-style units presently under
8 J. C  z. A( f5 I$ J3 M3 \, zconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
( |: W4 X2 \7 B3 z  d6 jcyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
/ U8 I( U$ g# Q7 Y4 }  K: Wanticipate that the West Coast will continue to benefit from
3 Y0 Z8 K- Q! @0 A, Q: L# Ginter-provincial and international migration over the coming
years, which, along with improvements in affordability,
/ @( [; C, U0 t( O* _& O/ K# D2 j) J2 [will alleviate some of the pressure from overbuilding.
OVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
3 \' Y, S3 o8 C' A4 E3 S/ jGrant Bishop, Economist
: Y) z6 G: e& _; C416-982-8063
Pascal Gauthier, Economist
416-944-5730
8 Z$ i7 V9 E! f9 G8 z7 a' v6 j5 w/ ]3 b
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙