UPDATE 2-Canadian housing starts ease but beat expectations

Tue Nov 8, 2011 9:37am EST

* Oct starts fall to 207,600 units; higher than forecast

* Condominium growth supports market, single starts slip

By Claire Sibonney

TORONTO, Nov 8 (Reuters) - Canadian housing starts slipped in October, but came in higher than expectations, as low interest rates and condominium building helped offset the impact of negative global economic news.

Canada Mortgage and Housing Corp (CMHC) said on Tuesday that starts slipped to seasonally adjusted annualized rate 207,600 units in October from an upwardly revised 208,800 units in September.

The median forecast in a Reuters poll was for 195,000 starts in October.

"Broadly speaking, the Canadian economy remains ... favorably situated relative to its global peers as headwinds on the international front have intensified," Mazen Issa, Canada macro strategist at TD Securities, said in a note to clients.

Those headwinds - such as Europe's escalating debt crisis, sluggish global growth and market volatility - have further pushed back expectations on the timing of the next increase in the Bank of Canada's main policy rate, currently at 1 percent.

The central bank's accommodative policy stance may continue to support the housing market, but Issa cautioned that tighter mortgage rules, diminished household spending capacity, and higher five-year mortgage rates will weigh.

CMHC also noted that overall housing starts are expected to moderate in line with demographic fundamentals.

The data showed urban multiple housing starts, which include condominiums, remained strong in October, while weakness in single starts drove the slight decline in building activity.

"Downshifting economic growth, recent declines in the value of residential building permits, combined with a gradual exhaustion of pent-up demand suggest that starts could soften towards 190K-200K into 2012," CIBC economist Emanuella Enenajor said in a note to clients.

"However, October's elevated housing construction print suggests that homebuilding activity heading into Q4 still remains strong."

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