October 8, 2014 / 1:58 PM / 3 years ago

UPDATE 1-Condos push Canada housing starts higher in September

(Adds details from report, analysts quotes, byline)

By Leah Schnurr

TORONTO, Oct 8 (Reuters) - Canadian housing starts rose modestly in September as builders broke ground on more multiple-unit dwellings, typically condominiums, data showed on Wednesday.

The report from the Canada Mortgage and Housing Corp (CMHC) showed housing starts climbed to a seasonally adjusted annualized rate of 197,343 units last month from an upwardly revised 196,283 units in August.

That topped an analysts’ forecast for 196,100 starts. August was originally reported as 192,368.

The homebuilding sector has shown resilience this year, bouncing back from weakness at the beginning of 2014 that was caused by severe winter weather, and the housing market generally has remained strong, defying expectations for a correction or crash.

Economists, however, expect homebuilding and sales to slow when mortgage rates eventually rise, but that the slowdown may happen gradually.

September’s rise in starts lifted the six-month moving average to 197,747 from 191,095, reflecting stronger activity since April, which has been largely concentrated in multiple unit homes.

The six-month trend is running above the level consistent with demographic fundamentals, which is around 185,000, Mazen Issa, senior Canada macro strategist at TD Securities, wrote in a note.

“Unless the low interest rate backdrop changes, housing starts are unlikely to correct much in the months ahead,” he said.

With the Bank of Canada not appearing to be in a rush to tighten policy, TD sees starts only gradually easing to 192,000 by the end of the year.

Multiple unit starts, most often condominiums, rose 2.4 percent in September, offsetting a 2.9 percent decline in single-detached homes. Starts in rural areas rose 1.4 percent.

The elevated level of condos under construction supports the view that ground-breaking on condos should trend lower over the coming months, CMHC chief economist Bob Dugan said.

Activity was concentrated in the provinces of Ontario and Quebec, where starts rose 5.2 percent and 16.6 percent, respectively.

Overall, starts appear to be running into resistance at the 200,000 mark, which is good news for those concerned about overbuilding, wrote Robert Kavcic, senior economist at BMO Capital Markets.

“This will let policymakers breathe easier, and suggests that overall building activity in Canada remains within the range required to satisfy demographic demand,” Kavcic said. (Editing by Peter Galloway)

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