Canadian housing starts blew past forecasts in April to the highest level since 2007, led by a surge in condominium construction that added to concern about a possible housing bubble.
The seasonally adjusted annualized rate of starts was 244,900 units, up from 214,800 in March, smashing through expectations for 202,000 starts. The number of multiple-unit starts, which includes condominiums and apartments, was the second highest on record.
Analysts said the data adds evidence to the view that the Canadian housing sector, which never suffered the sharp downturns seen in the United States and elsewhere in the 2008-09 recession, remained robust, with a risk of overheating.
"This report reflects unbelievable strength in (Canadian) housing starts, and all of the gain was in multiples again, which reflect the ongoing Canadian condo craze," Scotiabank economists Derek Holt and Dov Zigler said in a research note.
Both the finance department and the Bank of Canada have warned repeatedly about Canada's hot housing market, singling out sizzling condo markets in Toronto and Vancouver, where bidding wars and foreign investment have pushed up prices.
But the Canada Mortgage and Housing Corp (CMHC), the federal agency that issued the report, dismissed those fears.
"In our monitoring of the condo markets, we don't see clear evidence of overheating in those markets. We don't see either clear evidence of problematic house price conditions," CMHC deputy chief economist Mathieu Laberge told reporters after the agency issued its annual report for 2011.
Concern about the housing market centers on the fact that many buyers could have problems once historically low interest rates start to rise. Some experts have cautioned that the housing market is 10 to 15 percent overvalued.
The head of Canada's largest bank, however, said concerns about pockets of hot condo activity in Vancouver and perhaps Toronto should not suggest the broader market is in peril.
"I think the housing market generally in Canada is in pretty good shape," Royal Bank of Canada Chief Executive Gordon Nixon told the Bloomberg Canada Economic Summit in Toronto.
"When you look at debt servicing levels to GDP, we're at historically low levels," meaning consumers are able to service their mortgages, he said.
Tuesday's data showed that urban starts rose by 18 percent to 226,200 units in April, driven largely by a 27.4 percent increase in condos and other multiple units. Starts of single-family homes rose a more modest 0.6 percent, CMHC said.
"This print underscores the concern regarding the Canadian condo market - in particular in Toronto," Mazen Issa, Canada macro strategist at TD Securities, wrote in a note to clients.
"We do not see this pace of starts as being sustainable and reaffirms concerns policy officials have noted regarding activity in this particular segment of the market."
Robert Kavcic, economist at BMO Capital Markets, said housing starts were rising faster than demand.
"The bubble-mongering that has been going on seemed overplayed for some time given that housing starts were running only slightly above household formation (about 180K), on average, for the past three years," he said.
"But that is no longer true with starts now moving well above underlying demand, and accelerating in recent months."
CENTRAL BANK WATCHING DEBT LOADS
Bank of Canada Governor Mark Carney has urged Canadians to heed the lessons of the U.S. housing crash, calling excessive household debt the single biggest domestic risk to the Canadian economy as home-buyers borrow at extremely low rates.
He has said monetary policy could be used, as a last resort, to curb housing-related consumer debt. But it would be better to use more targeted measures first because raising interest rates would hit the broader economy.
CMHC said it was monitoring rising debt-to-income ratios. It said its program of securitizing mortgages had proven resilient, but it was not immune to broader market disruptions.
The agency had a tiny 0.41 percent rate of arrears of 90 days or more on mortgages it insures at the end of last year, a fraction of the 9.6 percent serious delinquency rate on single-family insured mortgages at the U.S. Federal Housing Administration.
"This year's results continue to show that CMHC's mortgage loan insurance business is well positioned to handle even extremely adverse economic conditions," CMHC chairman Dino Chiesa said in the report.
As part of a broader effort to cool the hot housing market, Finance Minister Jim Flaherty said last month that the government plans to have its bank regulator oversee CMHC's commercial activities.
But Flaherty has resisted calls by lenders and some economists to tighten mortgage rules for a fourth time since 2008. He has said he sees signs banks are regulating borrowing themselves, and that the market is starting to correct itself.
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