Surge in Canada condo starts fuels bubble talk

Tue May 8, 2012 7:44pm EDT
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By Claire Sibonney

TORONTO (Reuters) - Canadian housing starts blew past forecasts in April to the highest level since 2007, led by a surge in condominium construction that added to concern about a possible housing bubble.

The seasonally adjusted annualized rate of starts was 244,900 units, up from 214,800 in March, smashing through expectations for 202,000 starts. The number of multiple-unit starts, which includes condominiums and apartments, was the second highest on record.

Analysts said the data adds evidence to the view that the Canadian housing sector, which never suffered the sharp downturns seen in the United States and elsewhere in the 2008-09 recession, remained robust, with a risk of overheating.

"This report reflects unbelievable strength in (Canadian) housing starts, and all of the gain was in multiples again, which reflect the ongoing Canadian condo craze," Scotiabank economists Derek Holt and Dov Zigler said in a research note.

Both the finance department and the Bank of Canada have warned repeatedly about Canada's hot housing market, singling out sizzling condo markets in Toronto and Vancouver, where bidding wars and foreign investment have pushed up prices.

But the Canada Mortgage and Housing Corp (CMHC), the federal agency that issued the report, dismissed those fears.

"In our monitoring of the condo markets, we don't see clear evidence of overheating in those markets. We don't see either clear evidence of problematic house price conditions," CMHC deputy chief economist Mathieu Laberge told reporters after the agency issued its annual report for 2011.

Concern about the housing market centers on the fact that many buyers could have problems once historically low interest rates start to rise. Some experts have cautioned that the housing market is 10 to 15 percent overvalued.   Continued...