TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
+ W3 M' t" v! I* Z6 rfrom 2002 to 2008, unsustainable price increases drove
0 X; \. R" \" \/ m# tunsustainable levels of building. Our view is that house
6 G2 C# C/ e. K% V, x0 u- {: {8 Xprices exceeded the value of housing that was justified by
% d6 q2 \8 _% s4 Qfundamentals 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
three years.
7 x( d; j/ H0 e5 {9 {# G9 v/ z( iBy “overpricing” we mean that prices detached from
- g( i# g0 O$ j$ D9 ~& Btheir fundamentals, as witnessed by a steep erosion of
. \3 s8 ?9 d6 s1 \  Raffordability. The current unwinding of house prices reflects
both a cyclical downturn and a return of house prices
to fundamentally justified levels.
4 G! v: T7 V% T& r3 I' k* @" z1 cWe consider “overbuilding” of two forms: “demanddriven”
where homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
& T! V8 o! R. c3 p5 ]where builders accumulate excessive inventories. Although
8 ?' v  a0 l- B7 Rthere is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
, t4 \. h* n8 M. ?homebuyers pushed homebuilding to an unsustainable pitch
8 T7 @9 `' }+ e. V# ~that is now being rapidly reined in.
3 h; p9 m5 g0 h8 l& ZWhile most markets won’t face U.S.-style overhangs,
the construction of too many new homes over the boom
: s- J9 ?% X/ g& @: k6 w+ D* D; tmeans 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
6 S- J& u, q) K& j& A) Y6 _( aremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
: P9 M9 q' e0 B* ?8 {& F. Vresidential construction will fall further to around
0 B/ Z5 z/ q" p% f" l125,000 starts over 2009 with a trough around 115,000 units
in the fourth quarter.
6 U/ q3 ?- e5 v7 [- @: v: F3 r9 M; d9 hTo 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
0 F7 j0 u+ h( R' L& ?9 b; O' s9 C9 Nprovince. Affordability is the key concept behind home
2 E# `; V# T2 lvalues 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
7 w- C* H- o; D$ ?of residential construction.
- G; ^% v) N& l' I1 x3 t3 TTo 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
. n3 K7 ^) c  R# w$ W& ~( s* |) Nunits 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
/ ~" Y7 N, X; E9 U. spopulation inflows. Saskatoon, Calgary and Edmonton are
9 I1 ]4 j6 c3 R, @2 Balready 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.
3 C- K( b/ H  o( O* _) j3 RQuébec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
) o* p+ L/ \/ `4 G- mMontréal – 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
) X( N$ E" e  R: t8 f+ |cyclical downturn, the degree of structural weakness appears
7 o% c& s# A8 Climited – with the important exception of the Toronto
! T4 l, |0 B' q1 acondo market. Both in Toronto and Vancouver, historically
" }- S7 E9 H; v# Shigh levels of apartment-style units presently under
  q- ?7 C6 g3 S  fconstruction mean that record numbers of condos will
# l* R7 z) _! ]0 ]9 L8 Ereach completion during 2009. If absorption rates fall, as
cyclical factors would indicate, condo inventories could
- {) O# Y9 Q  _" \7 ]$ A8 hspike severely – particularly in Vancouver. However, while
residential construction in B.C. will definitely droop, we
/ f) [" _2 [# L5 c; {- y; G0 Panticipate that the West Coast will continue to benefit from
. v% m( \# I- W6 }6 h* k+ [( {0 kinter-provincial and international migration over the coming
years, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
; }- P6 w$ z5 sOVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
416-982-8063
( V) D3 }9 l  \% ^3 ?Pascal Gauthier, Economist
9 [, N" L& U- x2 j+ M; w416-944-5730
% g& D; _% Y# E- Z% C, {
# \+ L  r( D- dhttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙