Pace of Canadian housing starts surprises with August increase

Canadian housing starts rose slightly in August, defying the expectations of economists who had been looking for a drop.

Canada Mortgage and Housing Corp. reported Monday that the the seasonally adjusted annual rate of housing starts for all areas of Canada was 223,232units in August, up from 221,974units in July.

Market watchers had been expecting the annual rate of housing starts to come in at 216,000 unitsfor August.

Ontariodrove the increase last month, with starts jumping to 95,000, said Robert Kavcic, senior economist at BMO Capital Markets,leaving home building in the province on pace for the most activity since 2003.

"This remains largely a [Greater Toronto Area]story, and still one of ample condo supply, but a dearth of single-detached units," Kavcic said in a commentary.

CMHC said condominium apartment starts in Toronto approached a seasonally adjusted annualrate of 36,000.

"The unprecedented pre-construction condominium apartment sales levels seen over the past few years will ensure that high-rise construction remains strong in the near term," CMHC said.

Michael Dolega, senior economist atTD, said the August report suggests that the Canadian housing market "remains quite strong after the wobble it suffered in the second quarter and the uncertainty of regulatory changes in Ontario and rising interest rates."

Dolega said last month's report marks the second-best month this year while the six-month moving average is nearing the 220,000mark the fastest pace since late-2012.

"All in all, we expect Canadian housing starts to remain relatively healthy in the coming months, but begin to trend lower as the effects of rising interest rates...and potential new regulation...gradually take a bite out of demand," he said.

Housing starts should hold near the current levels in the next month or two, but trend towards the 200,000 level into early-2018 and fall below that threshold the year after, Dolega said.