Canada Mortgage and Housing Corp. says housing starts increased in May, largely on the strength of rural homes and urban condos.
The seasonally adjusted annual rate of housing starts was 183,600, up from 178,700 in April. The agency reported single starts declined in May.
"Housing starts increased modestly in May due to an increase in multiple construction in most provinces and in rural starts," said Bob Dugan, chief economist at CMHC's Market Analysis Centre.
"The increase in multiples and rural starts was partly offset by a decrease in single starts."
Urban starts increased 0.8 per cent to an annual rate of 161,000 units in May. Urban multiple starts were up four per cent to 100,000 units, while single urban starts fell 4.1 per cent to 61,000 units.
May's annual rate of urban starts increased 33.3 per cent in British Columbia, 13.5 per cent in Quebec, 11 per cent in the Atlantic region and 10 per cent in the Prairies. Urban starts fell 22.9 per cent in Ontario.
Rural starts were estimated at a seasonally adjusted annual rate of 22,600 units in May.
TD Bank economist Francis Fong said in a note that affordability is beginning to erode as home price increases have significantly outpaced income and job growth.
"With the Bank of Canada set to raise interest rates later this year affordability will weaken further, putting downward pressure on overall prices and, thus, construction activity," Mr. Fong wrote.
"TD Economics anticipates housing starts to run below their long-run sustainable level over the next few years as multi-unit building slowly unwinds."
CIBC World Markets economist Krishen Rangasamy said housing starts reached a peak of around 200,000 in the first quarter of last year and the numbers have been on a gradual decline ever since, even with low interest rates.
"And with a recent softening in the pace of existing home sales, the listing to sales ratio rose to a seven-month high in April. So, we may see some softness ahead for housing," the economist said.
"We expect housing starts to continue to soften - a 10 per cent or so drop in starts compared to last year - as home prices stagnate in light of higher interest rates in the second half of the year."