TD Bank:OVERPRICED AND OVERBUILT: CANADIAN HOUSING

依勒特

During Canada’s “Housing Boom”, which ran roughly
/ C0 y/ q+ q: |/ H2 j+ v8 Dfrom 2002 to 2008, unsustainable price increases drove
unsustainable levels of building. Our view is that house
# k9 k  n9 g. m+ ~prices exceeded the value of housing that was justified by
# u! Y: b) m# {' l" Qfundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
that exceeded its fundamental-justified level by approximately
) g& B& \0 Q5 s& R; R12%, an excess that was exaggerated in the past
three years.
By “overpricing” we mean that prices detached from
their fundamentals, as witnessed by a steep erosion of
affordability. The current unwinding of house prices reflects
; e! W1 v* V8 b( d! n2 D" w. pboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
: `0 g; B. a8 Nwhere homebuyers buy up too many houses and
that 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
. S8 F1 H! J& u  E$ {; jhomebuyers 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
means a deepened slump. This overbuilding will likely weigh
( {0 N3 Q* U3 x2 V; f9 T9 u' von markets over the next few years. Even as Canada recovers
! v# J' W2 T1 I; C/ tfrom the cyclical downturn, house price growth will
# c! \# O3 P' ^, |' {( c( ^" M" gremain choppy and new residential construction will be
dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
( o5 q, s- x- i/ ~1 Fto persist over 2009 to 2011. We anticipate that nationwide
3 e, f' z& ~) y; B1 h; y: r: ^residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
* u# |9 t( @# c: `8 ?1 A( X8 h) s; _in the fourth quarter.
; c5 X% g" F% ZTo quantify the degree of overpricing and overbuilding,
2 p! n* P( t1 _; p/ uwe first develop an empirical model, based on long-run
9 l0 e: s6 [9 W$ {, u' R: _. yfundamentals of house prices and housing starts in each
province. Affordability is the key concept behind home
: o8 h% s( x( \, z) y6 kvalues since house prices should track incomes over the
long-run. Since homebuilders build to meet demand, we
. n% d* Z4 C3 K& w; G- P( dregard housing prices and household formation as the drivers
% t* O/ {! K% E2 H9 Jof residential construction.
; ~/ m2 }# h8 t6 L9 [. nTo examine the degree of overbuilding, we employ a
% [6 y2 I+ |$ \+ t9 U- x“counter-factual,” asking what level of residential construction
* V2 k8 n. @+ p) L  mwould have occurred if housing had been priced
& j+ I: Z7 ^. X, coptimally. We find that actual homebuilding exceeded this
- w9 y+ U& ]8 m% J* @fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
# ~' I( s; Z+ ^6 umany houses at prices that exceeded fundamentals.
' o- W, i5 d# n3 [" hRegionally, we see the greatest strains on the Prairies,
. J3 I% O$ X  P8 {where housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
already witnessing surges in their unsold new homes at the
% _  E& w# B' Z8 t, ]/ T7 mvery 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
7 g% I5 C6 Q$ m9 z% Aweakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
! H/ S) P% h8 v7 v! j# p+ IMontréal – but recent building has been relatively balanced,
% \) d  c6 O$ I/ Q* |- Q! Ggiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
+ l+ Y$ a# R% W9 J7 q' @cyclical downturn, the degree of structural weakness appears
6 Y4 l& t1 S1 f& N' }limited – with the important exception of the Toronto
$ j* `0 R& f/ X$ L( vcondo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
% t/ K' T. P3 Gconstruction mean that record numbers of condos will
reach completion during 2009. If absorption rates fall, as
2 [% k9 `1 E# ?8 ^cyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
& _% l# h) z/ P0 zresidential 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
, S( Q/ j" v3 ]6 E1 ]0 N0 Ryears, which, along with improvements in affordability,
2 t  J, D! {6 e/ a3 ?" a' ~3 Awill alleviate some of the pressure from overbuilding.
0 Z, G+ ?; ]% W' z' k& P. d' J3 }  YOVERPRICED AND OVERBUILT: CANADIAN HOUSING
3 R- D6 \5 |$ J) ~* a. M" vMARKET RETURNS TO FUNDAMENTALS
3 }1 ^! m  w( c+ l- mGrant Bishop, Economist
416-982-8063
; H& @- T# l# I9 G  F! q4 SPascal Gauthier, Economist
5 \" T  ]0 K" Y! O- h2 F8 _416-944-5730
' n* g/ S  P8 s, G: i% s
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙