During Canada’s housing boom which ran from 2002 to 2008, unsustainable price increases drove unsustainable levels of building, says a special report released today by TD Economics.

House prices exceeded the value of housing that was justified by fundamentals by about nine per cent nationwide.

“This overpricing compelled a level of residential construction that exceeded its fundamentally-justified level by approximately 12 per cent, an excess that was exaggerated in the past three years,” says the report.

In particular, Calgary and Edmonton have accumulated “worrisome inventories of unsold singles.”

“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,” says the report authored by economists Grant Bishop and Pascal Gauthier.

“Regionally, we see the greatest strains on the Prairies, 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 very time that the resale market has swung into strong buyers’ territory.”