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
overpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
  h' d' @' a; t+ O8 Z$ j* @three years.
$ [3 S: x( x; `" c( U; _4 b. k* {& RBy “overpricing” we mean that prices detached from
& H8 {  i7 Y$ P- H6 a/ G9 Ztheir 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.
' W) e7 o8 o' W1 b& h6 dWe consider “overbuilding” of two forms: “demanddriven”
" z# Z& g' G5 }3 Ywhere homebuyers buy up too many houses and
$ W: v5 Y; f. u) H* i+ v# wthat 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
“overbuilding” was mainly of the first type, where
homebuyers pushed homebuilding to an unsustainable pitch
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
: B' I( s  N6 I+ Y1 cmeans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
! c( R( B/ G% p) O  S( \0 _+ F" m+ G1 [from the cyclical downturn, house price growth will
' I$ z, ^+ \6 _" k7 Uremain choppy and new residential construction will be
4 y& _& [4 _" ndampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
9 R/ r9 w) p" ?: Q1 @residential construction will fall further to around
: [; g1 D" J+ o7 o: ^3 V/ v2 T125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
2 }4 r0 _8 w  o2 NTo quantify the degree of overpricing and overbuilding,
( F' ^* {+ `5 y6 K- _6 F/ x/ r9 Hwe first develop an empirical model, based on long-run
( W) A% g2 W* o! ifundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
) K* c$ C5 Z. p9 cvalues since house prices should track incomes over the
- j$ K6 t1 D; Y9 C8 X3 w, W$ D7 Wlong-run. Since homebuilders build to meet demand, we
) {1 f1 Q2 W4 d' q+ Y4 xregard housing prices and household formation as the drivers
  \& I$ f/ j0 o- y7 \9 I' tof residential construction.
- U) T' e, V  B6 r& l+ C. }To examine the degree of overbuilding, we employ a
  [+ I& q/ P/ q! _7 I, I$ [- f' L“counter-factual,” asking what level of residential construction
! ^# f# T0 B; _' ~9 y3 l$ H6 Uwould have occurred if housing had been priced
( D( j+ \8 \# o. ?optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
5 E2 `# ]8 e9 ]5 d9 Y8 o' n3 u5 x% runits were being absorbed, homebuyers simply bought too
many houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
5 p6 d6 Q% t* \- J6 J4 v9 {' swhere 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
* W9 W8 b+ ]: A2 v4 g1 Abuyers’ territory. Homebuilding in the Atlantic provinces
5 O: W. M  I# \- O7 `( h1 B! `has been relatively balanced but, while not plagued by structural
weakness, will be singed by the downturn nonetheless.
7 M1 }* ?8 @5 ^& G' [4 H( RQuébec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
0 P  u" `& k( X  D' l) m1 x5 TMontréal – but recent building has been relatively balanced,
3 G5 Q4 ^8 s, a- Tgiven the province’s history of under-building and low ownership
  o  `" H* _. r& Lrates. While Ontario homebuilding will reel from a
cyclical downturn, the degree of structural weakness appears
  D2 K8 r% M1 X& d, w, ^$ Climited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
- e3 c2 K  x2 ]7 E4 R- [high levels of apartment-style units presently under
construction mean that record numbers of condos will
1 y& a, ?. ]  Breach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
2 y, G( u: {# P6 I1 wanticipate that the West Coast will continue to benefit from
5 x) {! f; \! L- k+ iinter-provincial and international migration over the coming
years, which, along with improvements in affordability,
2 d! c0 M8 R& q. e; i  n* ~will alleviate some of the pressure from overbuilding.
6 @' q% K# U/ T* t8 [+ LOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
% y2 j9 N  F3 n9 Q) DGrant Bishop, Economist
" s, a9 S8 f& e# t8 H416-982-8063
' L1 M% i6 k" t% D" M9 C8 `) yPascal Gauthier, Economist
% L9 e' v, T+ T' E/ A" R416-944-5730

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

宋兵乙