With home construction starts rebounding in December, Canada's builders showed few signs of slowing down despite persistent warnings about high levels of consumer debt and economic uncertainty.
The Canada Mortgage and Housing Corp. reported Tuesday that house starts rose more than expected to more than 200,200 units last month — from 185,600 in November — with condos in Toronto and the Atlantic region leading the way.
The increase beat economists expectations and again raised the issue of when Canada's housing market would begin to cool to what analysts regard as a more sustainable, replacement level.
There's a suspicion that at least some types of housing in some markets has been overbuilt as builders and consumers take advantage the low interest rates that have been available for several years.
“There is now a large overhang of completed, but unoccupied multi-units as low interest rate likely fuelled some overbuilding in the condo market, which puts some downside risk to future building in this sector,” said TD bank economist Diana Petramala,
Ms. Petramala estimates activity in the new year will cool to a sustainable annualized range of 175,000-185,000 units. The monthly statistics released by Canada Mortgage and Housing Corp. attempt to adjust for seasonal variations in starts.
Interest rates are not expected to increase in the coming year, but analysts noted that Canadian households are already at record high debt levels, and the growth of both jobs and income has stalled.
Some analysts, such as David Madani of Capital Economists, have suggested Canada's home prices might fall as much as 25 per cent in the next few years, while the Bank of Canada has also forecast a correction, although much more mild.
December's rebound, however, concluded another solid year in Canada.
For 2011 as a whole, the preliminary estimate is that 193,000 units were begun, with the last six month seeing an average pickup of 200,000 annualized.
Scotiabank's Derek Holt said it was unclear whether housing would add to gross domestic product growth in the fourth quarter, given that it was even stronger — in terms of starts — during the third, when the economy expanded by 3.5 per cent.
“What we don't know is how renovation spending performed during the quarter and some value-added administrative functions to round out the full perspective on how housing contributed to GDP growth in Q4,” Mr. Holt explained.
December's starts are seasonally adjusted and projected over the year — the actual number of units begun in December was 16,576.
The seasonal figures attempt to adjust for the impact of slow and busy periods during different parts of the year.
Canada Mortgage and Housing Corp. says urban starts rose in December by 52.9 per cent in Atlantic Canada, 35.3 per cent in Ontario and 9.0 per cent in Quebec.
They fell 19.8 per cent in British Columbia and 11 per cent in the Prairies.
Starts of single homes in urban areas increased by 3.5 per cent, while urban starts of multiple dwellings — condos, apartments and retirement homes — rose by 14.5 per cent.
CMHC provides insurance that provides mortgage lenders with some protection from defaulting borrowers,