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Crews work on a house near Toronto in this file photo.

Canadian housing starts dropped sharply in January, coming in far below expectations, as home builders scale back, notably in Toronto's condo market.

The number of starts sunk to 160,577 units during the month, down from 197,118 in December, Canada Mortgage and Housing Corp. said Friday.

In Toronto the figure came in at 16,800 units for January, compared to 49,800 in December.

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"Home building, especially in multiunit starts, slowed in January after experiencing elevated levels of condominium apartment starts throughout 2012," stated Shaun Hildebrand, senior market analyst for Toronto at CMHC. "Housing construction in 2013 is expected to remain lower than last year, but should continue to receive some support from strong preconstruction condo sales activity in late 2011 and early 2012."

Weakness was also evident outside of Toronto.

The collapse in housing starts in urban areas in January was driven by multiple-unit-buildings, such as condos, which were down 29 per cent, noted National Bank economist Krishen Rangasamy. But starts of single dwellings were also down a steep 11.2 per cent, he noted.

"Starts were down sharply in Ontario (44 per cent), Quebec (30 per cent), and the Prairies (6 per cent), more than offsetting gains in B.C. and the Atlantic regions," Mr. Rangasamy wrote in a research note. "With this fifth consecutive drop, starts are at their lowest since the 2009 recession."

He added that the government's tighter mortgage rules, and the soft economy, are hurting the demand for homes and decreasing the incentives for builders.

Canadian Imperial Bank of Commerce economist Emanuella Enenajor noted that the national figure of 160,577 starts during January was "miles shy" of the consensus expectation of economists for 195,000 starts during the month.

"While the series can be volatile during the winter months, particularly as December's reading may have been supported by warmer-than-normal temperatures, the sheer scale of the drop points to an acute weakening in the home building sector, consistent with the slowing trend in residential building permits seen in recent reports," Ms. Enanajor wrote in a research note. "Today's data suggest home building is set to swing from an economic positive in 2012 to a drag in 2013."

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CMHC deputy chief economist Mathieu Laberge noted that the trend in housing starts has been moderating since September, while existing home sales have been moderating since May.

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