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Residential construction in Canada increased in May, yet another positive development for the housing market.

Housing starts across the country rose more than 9 per cent in May to 128,400, seasonally adjusted and at an annual rate, from 117,600 in April, Canada Mortgage and Housing Corp. said Monday.

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"This morning's housing starts data for May from CMHC provided us with the first sign that a bottom might be forming in Canadian home building activity," said Toronto-Dominion Bank economist Pascal Gauthier.

The increase was broad-based, including both single homes and multiple units such as condominiums, and was better than economists had projected.

Housing starts surged in Ontario and the Prairies, and rose more modestly elsewhere, although construction declined in British Columbia, New Brunswick and Newfoundland and Labrador.

BMO Nesbitt Burns economist Robert Kavcic pointed out that in British Columbia, housing starts on an annualized basis are near the record lows seen in the early 1980s and early 1990s, meaning the province has "the distinction of having arguably the nastiest residential construction recession this cycle."

In urban areas across Canada, construction rose 11.1 per cent.

The broad-based nature of the rebound was an encouraging sign, TD Securities said in a research note, although it cautioned the market would remain soft.

"Indeed, after plunging precipitously since late 2007, and appearing to be in freefall in recent months, this rebound may be an indication that the sector is perhaps stabilizing," said economics strategist Millan Mulraine. "Nevertheless, with the Canadian labour market continuing to weaken and the overall economy remaining quite soft, we expect residential building activity to remain the current depressed range for some time."

Mr. Kavcic also suggested that the slump in residential construction might be finding its bottom.

"However, the weak activity has only begun to chip away at the overbuilding seen during the latest boom, and the recovery in starts will therefore likely be tepid," he said.

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