UPDATE 3-Canadian housing starts jump, ease recession fears

Tue Oct 11, 2011 12:11pm EDT

* Condominium boom helps fuel growth
    * Sept starts rise to 205,900 units
    * Aug starts revised up to 191,900 units
    * Housing sector still seen cooling in year ahead

    By Jeffrey Hodgson
    TORONTO, Oct 11 (Reuters) - Canadian housing starts jumped
a higher-than-expected 7.3 percent in September, helped by a
surge in the condominium sector, suggesting Canada's property
boom stayed intact last month and should help the economy avert
recession.
    Canada Mortgage and Housing Corp said on Tuesday that
starts rose to a seasonally adjusted annualized rate of 205,900
units last month. August starts were revised up to 191,900 from
184,700.
    The median forecast in a Reuters poll was for 188,000
starts in September. 
    "Canadian housing remains quite healthy. Tailwinds
including low mortgage rates and a solid job market will
continue to be offset by headwinds including shaky consumer
confidence and high housing valuations, pointing to only a
slightly softer pace of activity in the year ahead," Robert
Kavcic, an economist with BMO Capital Markets, said in a note
to clients.
    Driving the gains was a jump in construction of
multi-residential buildings such as condominiums. The
government agency pointed to increased starts of so-called
multiples in the Atlantic region, Quebec and British Columbia.
    "Multiple housing starts are expected to move back toward
levels consistent with demographic fundamentals in the near
term," Mathieu Laberge, a deputy chief economist with CMHC said
in a statement.The agency said urban starts increased by 8 per cent to
185,900 units in September, with multiple urban starts up by
14.2 per cent to 118,000 units. Single family housing starts in
urban areas decreased by 1.5 percent in September to 67,900
units.
    Rural starts were estimated at 20,000 units.
    CIBC World Markets economist Emanuella Enenajor said in a
note that while multiple starts are widely expected to scale
down in the months ahead, residential construction could be a
plus for GDP in the third quarter.
    Canada's economy contracted marginally in the second
quarter, partly due to the supply chain impact of Japan's
earthquake and tsunami. There had been fears the economy could
shrink again in the third quarter, meeting the textbook
definition of a recession.
    But recent data has been encouraging. A report on Friday
showed Canada created six times as many jobs as expected in
September, helped by an economy that is largely humming along
even as other rich nations struggle with debt and slumping
confidence.
    "In the context of a darker international landscape, the
momentum in domestic activity reflected in the housing market
will play an important role in helping the Canadian economy
maintain its head start among developed market economies in
emerging from the 2008 recession," David Tulk, chief Canada
macro strategist with TD Securities, wrote in a note.
    CLOUDS ON HORIZON
    Canada's housing sector has played a major role in its
economic recovery. The country avoided the subprime housing
boom and collapse that drove the United States into recession
and helped trigger the global financial crisis.
    Property prices and sales briefly weakened after the
crisis. But the Bank of Canada's decision to cut interest rates
to a record low pulled mortgage rates lower and fueled fresh
growth.
    The housing market was helped by the fact Canada's
conservative banks escaped the crisis largely unscathed and
were able to keep lending. The fear now for many policymakers
is a fresh asset bubble could be in the works.
    Still, most analysts say the housing sector is likely to
cool in the year ahead. Government changes to mortgage rules
aimed at preventing a bubble have helped curb demand. The weak
U.S. economy -- destination for most of Canada's exports -- and
financial market volatility have also hurt sentiment.
    "The bigger question concerns what happens to housing in
Q4, given upward past revisions that now pose a higher base
effect, and the sharp decline in building permits that was
registered in last week's release," Scotia Capital economists
Derek Holt and Karen Cordes Woods said in a note.
    The value of building permits unexpectedly tumbled 10.4
percent to C$5.9 billion ($5.7 billion) in August from July for
the second straight monthly decline, Statistics Canada reported
on Thursday.
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