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
% {- U/ ^; o2 u8 i0 H% F- junsustainable levels of building. Our view is that house
: M2 \, d/ I7 G) ]0 Zprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
overpricing compelled a level of residential construction
# h1 p0 z; T, z0 ]2 ~: Q* Vthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
three years.
By “overpricing” we mean that prices detached from
5 @8 c+ P& a- I  s/ ytheir fundamentals, as witnessed by a steep erosion of
" d- ^) {" n8 D. s* Eaffordability. The current unwinding of house prices reflects
3 x* F- y' C7 a- S2 k4 Q4 G. ~. j; Aboth a cyclical downturn and a return of house prices
to fundamentally justified levels.
We consider “overbuilding” of two forms: “demanddriven”
' |4 ?2 O% t4 n/ z! y  zwhere 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
5 C4 r$ w  A+ S; Y! b; h- phomebuyers 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
on markets over the next few years. Even as Canada recovers
from the cyclical downturn, house price growth will
5 _3 V: s% p& ~  x1 I+ y3 \# J- tremain choppy and new residential construction will be
6 @6 E7 c6 n% G% P: U0 Y! Vdampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
to persist over 2009 to 2011. We anticipate that nationwide
0 J9 _1 B; D& j8 S8 d- ~residential construction will fall further to around
125,000 starts over 2009 with a trough around 115,000 units
# |4 E- O4 U1 w% j1 rin the fourth quarter.
To quantify the degree of overpricing and overbuilding,
7 }& W" I4 l; U/ h3 Hwe first develop an empirical model, based on long-run
fundamentals 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
: ~3 T9 }. B$ Cof residential construction.
/ `  Y8 [: ~% \. c7 BTo examine the degree of overbuilding, we employ a
“counter-factual,” asking what level of residential construction
* Y' W+ Z1 ?# C: |1 cwould have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
fundamental-justified level by about 12%. Although new
units were being absorbed, homebuyers simply bought too
9 J0 O9 ~$ x/ X6 W! I2 n* Pmany houses at prices that exceeded fundamentals.
Regionally, we see the greatest strains on the Prairies,
where housing demand will further contract under waning
population inflows. Saskatoon, Calgary and Edmonton are
/ ?% W: o1 M) b2 j: _! u8 ?7 H/ V+ Zalready witnessing surges in their unsold new homes at the
4 \! N$ |8 ?& X( Q% Vvery time that the resale market has swung into strong
) h' V+ U% R/ m3 l5 tbuyers’ territory. Homebuilding in the Atlantic provinces
has been relatively balanced but, while not plagued by structural
8 P! {: i& I* \8 O% F. Sweakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
strange accumulation of unabsorbed multiples on l’Île de
9 T# T! \2 G7 x- c! y  O+ GMontréal – but recent building has been relatively balanced,
& R; k5 R; a5 f2 ^7 x: I% B) @/ zgiven the province’s history of under-building and low ownership
rates. While Ontario homebuilding will reel from a
) `( g" {# _# n& n+ g* ]8 z* A$ Ucyclical downturn, the degree of structural weakness appears
limited – with the important exception of the Toronto
condo market. Both in Toronto and Vancouver, historically
high levels of apartment-style units presently under
& M! X# H* m# ]! Gconstruction mean that record numbers of condos will
3 E2 Y( P" n4 F& c0 Ureach completion during 2009. If absorption rates fall, as
; @+ B2 b5 \9 P9 t: ?4 D0 mcyclical factors would indicate, condo inventories could
( O/ i4 L; @' Hspike severely – particularly in Vancouver. However, while
  e/ m5 |! [% _& Xresidential 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
; `: r! h& @5 S  R( byears, which, along with improvements in affordability,
will alleviate some of the pressure from overbuilding.
4 w8 D& \. d) E, u+ d- {OVERPRICED AND OVERBUILT: CANADIAN HOUSING
MARKET RETURNS TO FUNDAMENTALS
- k; ^  d/ `. [' |Grant Bishop, Economist
! A* J3 Y1 L6 K416-982-8063
Pascal Gauthier, Economist
" `9 O: n0 i+ D4 n416-944-5730
5 A6 c9 m  {% L
http://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙