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
prices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
$ R3 \8 K* k# `& j( {/ aoverpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
, G) L- {9 F' j5 S! u12%, an excess that was exaggerated in the past
( N# B; n' p3 ^( i: a8 y: Jthree years.
  o5 X% g$ `  `/ E2 dBy “overpricing” we mean that prices detached from
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.
* T6 i3 |5 ]2 f2 BWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
+ o7 _( S8 E; x( ]6 r$ y! _that this demand cannot be sustained; and “supply-driven”
( n5 y" s# e1 j0 iwhere builders accumulate excessive inventories. Although
there is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
6 R8 I1 r/ k  m8 B$ r" q0 ]; V) K% Thomebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
( R  }; S: `1 I, _% zthe 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
! P4 X8 m7 Y- @& Rfrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
+ y, b9 Q4 A$ Q& ^dampened, owing to this structural weakness. Construction
' X9 `1 o9 z0 I5 v0 y2 }# [8 U- i/ Wis now undershooting fundamentals and we expect this
/ B3 B" S' l% o* p* y  H/ ito 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
in the fourth quarter.
To quantify the degree of overpricing and overbuilding,
% j; F8 Z4 [- |+ q8 lwe first develop an empirical model, based on long-run
+ c! v3 `/ g, H0 {" ofundamentals 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
long-run. Since homebuilders build to meet demand, we
regard housing prices and household formation as the drivers
of residential construction.
- R+ @0 a( s8 w1 r! y! c% |5 ]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
' p0 F! P, I. H: n- D$ H6 l8 [# k$ Zoptimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
6 ^3 ^- g. Z" q( B) u, d) dmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
* {/ l& I$ d9 \2 C) f! Nwhere housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
* \3 S9 h: v0 ^1 _already witnessing surges in their unsold new homes at the
" w4 d$ v' i6 G+ z6 i  Hvery 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.
; z& }7 @! P% a1 ?+ q" ?. G  J- tQuébec shows signs of strain – especially given the
+ P3 T, P% @5 v: o; Vstrange accumulation of unabsorbed multiples on l’Île de
/ L9 w- ^1 H5 x" t. f0 IMontréal – but recent building has been relatively balanced,
1 v* p4 b- h6 J3 w5 s: rgiven the province’s history of under-building and low ownership
- O$ g$ v* j# J2 l2 }rates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
6 U  _2 X" P' D& Q7 n" wlimited – with the important exception of the Toronto
( o2 P; ]4 [) gcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
+ }/ D2 y4 P- j1 T) Jconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
* Y6 h6 U5 _; ]" _( L! Lspike severely – particularly in Vancouver. However, while
residential 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
, V6 f" h% b- d! @0 }years, which, along with improvements in affordability,
* j( o% h3 d1 K; A& H- a" Uwill alleviate some of the pressure from overbuilding.
# l, J" B% w4 R4 A7 j) ]( xOVERPRICED AND OVERBUILT: CANADIAN HOUSING
% _8 o6 _& w) q" m/ Y3 t' {# iMARKET RETURNS TO FUNDAMENTALS
, N* V$ `7 z# z  P  T3 MGrant Bishop, Economist
+ b. v8 _) M: U  O416-982-8063
# h% C/ L) u$ E- v9 R5 xPascal Gauthier, Economist
416-944-5730
) {3 g$ X! C4 l- q
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙