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
$ H6 I' I8 h/ ?# s$ `. j  lprices exceeded the value of housing that was justified by
fundamentals by approximately 9% nationwide. This
& a' c3 I, n4 L% ?( Yoverpricing compelled a level of residential construction
/ i) y3 ~/ n9 r6 ^; vthat exceeded its fundamental-justified level by approximately
12%, an excess that was exaggerated in the past
! F! d" k* X# B8 e8 X" Nthree years.
- \% K# V5 f' X; V, ]6 N' o1 UBy “overpricing” we mean that prices detached from
, ^2 _. Q; P0 B3 e. dtheir fundamentals, as witnessed by a steep erosion of
9 y- R- |3 L- C1 U( o3 I) taffordability. The current unwinding of house prices reflects
' H8 T% ^0 H) K. Z* Hboth a cyclical downturn and a return of house prices
$ C1 G( S0 y. `/ l- Mto fundamentally justified levels.
' n+ l) @3 R3 s* {. sWe consider “overbuilding” of two forms: “demanddriven”
# y- U3 K  G% I; V8 qwhere homebuyers buy up too many houses and
that this demand cannot be sustained; and “supply-driven”
where builders accumulate excessive inventories. Although
, t3 r! B$ B. Mthere is evidence of both types, we contend that Canada’s
“overbuilding” was mainly of the first type, where
0 S- d& ~+ y7 d. Fhomebuyers pushed homebuilding to an unsustainable pitch
that is now being rapidly reined in.
While most markets won’t face U.S.-style overhangs,
6 z( L. e) O, l; X/ cthe construction of too many new homes over the boom
3 o6 X; J' b1 ]9 Omeans a deepened slump. This overbuilding will likely weigh
on markets over the next few years. Even as Canada recovers
  U9 o+ \; L% r* Kfrom the cyclical downturn, house price growth will
remain choppy and new residential construction will be
* K  z1 V8 ~- G8 F' S3 }dampened, owing to this structural weakness. Construction
is now undershooting fundamentals and we expect this
, v  [9 A4 i: L  Tto persist over 2009 to 2011. We anticipate that nationwide
# M2 B& z- B/ t  V: Cresidential construction will fall further to around
% b8 F! }, ]4 }9 D0 t125,000 starts over 2009 with a trough around 115,000 units
+ y) }9 w4 [* S5 d9 _in the fourth quarter.
To 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
/ T  c# [7 r6 [7 g4 c/ e; [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.
To examine the degree of overbuilding, we employ a
8 d: ]$ j; B3 @) }; u0 L“counter-factual,” asking what level of residential construction
would have occurred if housing had been priced
optimally. We find that actual homebuilding exceeded this
, Q, O) J9 `/ W0 s- \fundamental-justified level by about 12%. Although new
units 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
6 R+ j9 h$ l7 l$ ?  y: Upopulation inflows. Saskatoon, Calgary and Edmonton are
( ?' }# w$ @  `6 J+ halready witnessing surges in their unsold new homes at the
very time that the resale market has swung into strong
+ h0 k: V/ O$ o+ Nbuyers’ territory. Homebuilding in the Atlantic provinces
has been relatively balanced but, while not plagued by structural
% e3 U: d8 b/ Z4 t6 k7 ]4 C$ dweakness, will be singed by the downturn nonetheless.
Québec shows signs of strain – especially given the
* e0 e- B/ X& {6 Y+ B8 J3 u$ Cstrange accumulation of unabsorbed multiples on l’Île de
Montréal – but recent building has been relatively balanced,
given the province’s history of under-building and low ownership
# r5 P' D+ Z1 ]4 P5 e- J: \0 Grates. While Ontario homebuilding will reel from a
cyclical 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
construction mean that record numbers of condos will
4 e+ j( ?4 y8 a6 f/ `reach completion during 2009. If absorption rates fall, as
2 B) P+ M0 }! W3 s9 H2 c( p+ Lcyclical factors would indicate, condo inventories could
spike severely – particularly in Vancouver. However, while
+ b- L4 R1 y* c( T& k1 bresidential construction in B.C. will definitely droop, we
* D  X" r. \% l( p0 |8 ^; Banticipate that the West Coast will continue to benefit from
: w" c  G% f! i$ ^- ~" U1 Einter-provincial and international migration over the coming
years, which, along with improvements in affordability,
& a% x9 q1 A, ~will alleviate some of the pressure from overbuilding.
4 f7 Y% M4 E8 Q1 o* y( JOVERPRICED AND OVERBUILT: CANADIAN HOUSING
8 y! D& h4 v; Y& gMARKET RETURNS TO FUNDAMENTALS
Grant Bishop, Economist
% L0 D/ ~/ I* E5 s8 Q+ ?416-982-8063
3 {! `  A. W5 M# u9 W0 Z$ Y7 }Pascal Gauthier, Economist
  O( T" {2 r; t0 `416-944-5730
/ c! C' O: Y- c1 }6 j* M
: g; E3 V, r& n2 |  Ihttp://www.td.com/economics/special/gb0409_housing_exec.pdf

宋兵乙