OTTAWA - Condo construction pushed Canadian housing starts to a 29-year high in September, suggesting troubles in the U.S. housing market haven't reached home builders north of the border.
Canada Mortgage and Housing Corp. said Tuesday that starts rose 19.6 per cent to a seasonally adjusted 278,200 units, up from 232,700 in August -- the biggest burst since 1978. The numbers drew most of their strength from an increase in multiple-family home starts in the country's big cities, especially condominiums.
"The main story behind (the numbers) is the condo sales (and) it's not a surprise, because the Canadian economy's doing so well,'' said Julie Taylor, a senior economist at CMHC.
"It's a matter of first-time buyers going into more affordable housing, which tends to be the multiples. It's the preferred means of acquiring houses.''
Canada and the United States, she added "are two separate entities, and what's going on in the States has been going on for quite a few years.''
The numbers surprised many economists, who say starts were expected to moderate to 218,000.
Craig Alexander, deputy chief economist at TD, conceded that a generally forecast cooling of the housing market has yet to take place, but said the bank wasn't likely to change its own forecast after the latest figures.
TD puts monthly housing starts at 200,000 units by the end of 2008.
"We are getting some additional unexpected strength, but because the Canadian economy is likely to face some head winds from a weaker U.S. economy because of the strength of the Canadian dollar ... a weaker profile for economic growth (is expected),'' Alexander said.
He said most of the weakness will be largely concentrated on exports, but those have a flow-through impact to the economic circumstances of families or businesses that work in those industries.
TD also noted that a large share of September's unexpected strength reflected a surge in construction in Montreal, which is unlikely to be repeated.
The U.S. housing market has been sagging due to record loan defaults, which led to increasing foreclosures in the "subprime'' part of the mortgage market, causing lenders to go bankrupt and in turn affecting other institutions that had backed the debts. That created a ripple effect on world markets, creating a credit crunch.
Much of Canada's housing market has been shielded from this, however, as subprime borrowers represent only five per cent of mortgage loans, compared with 20 per cent in the U.S.
RBC assistant chief economist Paul Ferley said he also expected a weaker level of construction activity in future, noting that most of the strength in September was concentrated in the "volatile'' multiples component.
"However, the near-term strength suggests another factor that will keep the Bank of Canada wary about the risk of too strong activity, despite the ongoing credit crunch and surge in the Canadian dollar,'' he said in a note.
Among its findings, the CMHC said the seasonally adjusted annual rate of urban starts increased 22.9 per cent to 244,400 in September.
Urban singles dropped 4.3 per cent to 90,300 units, while multiple-family starts increased 47.5 per cent to 154,100 units. Rural starts were essentially unchanged from August.
Starts in urban centres rose right across the country, although single-family starts fell everywhere except in Quebec, where they were unchanged. Urban starts registered an increase of three per cent in the Atlantic region, 46 per cent in Quebec, 23.6 per cent in Ontario, 11.1 per cent in the Prairies and 15.8 per cent in British Columbia.
The corporation itself expects housing starts to continue to decrease gradually between now and 2008.
