* August starts roar higher on Toronto condo projects
* Well above forecasts for 200,000 starts
* Pace of construction can't be sustained, analysts say
By Andrea Hopkins
TORONTO, Sept 11 Canadian housing starts surged
unexpectedly in August as a few large multi-unit projects in
Toronto, presold in late 2010 and early 2011, broke ground, data
from Canada Mortgage and Housing Corp (CMHC) showed on Tuesday.
The seasonally adjusted annualized rate of housing starts
was 224,900 units in August, up from 208,000 units in July and
well above the 200,000 average forecast of analysts in a Reuters
CMHC revised down the July figure slightly from the 208,500
units it reported previously.
"Volatility in housing starts numbers is always to be
expected, but this month's data clearly shows that Canadian
housing construction remains in high gear," Jacques Marcil,
senior economist at TD Economics, said in a research note.
"The rest of the economy is growing much slower and as a
consequence is not likely to be able to support this level of
housing supply for much longer," he said.
Economists at the CMHC agreed, saying the August increase
was the result of a few big Toronto condo projects and weakness
in July that made August appear stronger.
"This increase is primarily a reflection of the high level
of pre-sales in some of these large multi-unit projects in late
2010 and early 2011, which is in line with job gains at that
time," Mathieu Laberge, deputy chief economist at CMHC's Market
Analysis Centre, said in a statement.
"Overall, moderation in housing starts activity is still
expected for the remainder of 2012 and 2013."
A long run-up in Canadian house prices and a condominium
building boom in Toronto and Vancouver have sparked some concern
of a housing bubble.
But signs of cooling have begun to appear, with BMO Capital
Markets economist Robert Kavcic pointing to a 22 percent drop in
year-over-year Toronto condo resales in August as proof that
stricter mortgage rules and weaker demand have begun to filter
through to create a more moderate pace of residential
"The August housing starts report told a familiar tale of
strong multi-unit activity, particularly in Toronto," Kavcic
wrote in a research note. "But the report is looking more like
an historical artifact given that sales have begun to cool
significantly -- look for a gradual softening in housing starts
The CMHC report showed urban starts increased by 10.2
percent to 205,900 units in August. Urban single-family starts
remained relatively unchanged at 64,300 units, while multiple
urban starts increased by 15.5 percent to 141,600 units, the
Starts rose 47.5 percent in Atlantic Canada, 20.4 percent in
Ontario, 18.2 percent in British Columbia and 1.3 percent in the
Prairies. They dropped 9.8 percent in Québec.
"The higher level of starts recorded in Atlantic Canada and
British Columbia in August reflects low levels of activity in
July rather than an increasing trend that was registered in
August," Laberge said.
The federal government has tightened mortgage lending rules
four times in four years to try to prevent borrowers from taking
on too much debt to buy into the market, but economists said the
impact of those changes is still outweighed by historically low
"While recent changes to mortgage insurance rules will
likely limit the growth in demand for new homes, low interest
rates remain an incentive for buyers to borrow and keep the
housing market overvalued," Marcil said.
"In the end, higher interest rates are needed to bring the
Canadian housing market back to a sustainable expansion pace. We
expect the Bank of Canada to make that move in the spring of