Canadian housing starts climb in September

By Andrea Hopkins

TORONTO (Reuters) - Canadian housing starts rebounded in September as multi-family construction surged, and the unexpectedly strong end to the summer suggested homebuilding will be less of a drag on Canada's economic growth than previously thought.

The seasonally adjusted annualized rate of housing starts was 193,600 units last month, up from an upwardly revised 184,000 in August, data from the Canada Mortgage and Housing Corp showed on Tuesday.

That was well above analysts' expectations for 185,000 starts and recouped August's lost ground. The federal housing agency had initially said there were 180,300 starts in August.

The robust homebuilding in September was once again a story of higher construction of multiple-unit structures, typically condos. Groundbreaking of multiple units were up by 5.9 percent in the month to 113,705 units, while single-family starts rose a more modest 1.4 percent to 63,535 units, CMHC said.

"The result was much stronger than the street's expectations, and with the prior months' figure also revised up slightly, today's release suggest the homebuilding sector did better than expected in the late summer/early fall," CIBC World Markets economist Emanuella Enenajor said in a research note.

Canada's housing market rebounded in the spring and summer after slowing dramatically in late 2012, when the government tightened mortgage lending rules to stave off a U.S.-style housing bubble.

While the renewed strength in home sales and home building have led some economists to believe Canada's real estate market is inflating once again, economists said homebuilding is likely to slow in the months ahead as mortgage rates tick higher.

"As we move into 2014, we anticipate that the demand for housing will moderate as affordability deteriorates against a backdrop of elevated home prices and rising interest rates and result in a moderation in new home construction," David Onyett-Jeffries, an economist at RBC Economics Research, wrote in a research note.

"Our forecast calls for housing starts to drift lower over the next year and finish 2014 at 172,000 annualized units, a level that is more consistent with household formation in Canada."

The regional breakdown showed a sharp contrast between weakness in Ontario, Canada's most populous province, and strength in the rest of the country.

Starts rose 29.8 percent in Atlantic Canada, 24.7 percent in the Prairies, 17.4 percent in British Columbia and 5.9 percent in Quebec, but were down 15.6 percent in Ontario.

The strength in homebuilding in September puts the third-quarter rate of construction 1.5 percent above the second-quarter level, according to Scotiabank economist Derek Holt. That's barely enough to support economic growth.

"Today's release could mean that homebuilding in Q3 ends up being less of a drag than we previously expected," CIBC's Enenajor wrote.

The Bank of Canada said in July it expects the Canadian economy to grow by 1.8 percent in 2013, up slightly from 1.7 percent growth in 2012.

(Additional reporting by Leah Schnurr; Editing by Chris Reese)

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