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The Globe's new Real Estate Beat offers news and analysis on the Canadian housing market from real estate reporter, Tara Perkins, and others. Read more on The Globe's housing page and follow Tara on Twitter @TaraPerkins.

There is a widening gap between the number of building permits that developers are taking out and the number of new homes being built.

Why would that be? National Bank economist Marc Pinsonneault thinks it means that condo developers are scaling back their plans.

During the 12 months up until April, which was when the last measurement was taken, the number of building permits issued outnumbered the number of homes on which construction began by about 17,500, he says. "This has been increasing since the second half of 2012."

He believes that the "oversupply" of condos in some markets, such as Toronto and the province of Quebec, is causing developers to be more cautious.

The implication of that, Mr. Pinsonneault adds, is that – if he's right – then we don't need to fret too much about the recent runup in housing starts. In his opinion, it doesn't have legs.

CMHC released national data on housing starts on Monday, and the number of new homes that began construction in May was higher than expected. Economists had actually been expecting housing starts to fall, but they rose. That came on the heels of a strong showing in April. And that's raising fears that construction is taking off at a time when many economists think we're already building too many homes.

"There are still many signs that the Canadian housing market may be moderately overbuilt," Toronto-Dominion Bank economist Diana Petramala wrote in a research note. "The number of condos for sale in the existing home market has increased considerably faster than demand in Ottawa, Montreal, Quebec City, Toronto, Edmonton, Regina and Saskatoon. The number of newly built and unabsorbed units is starting to stabilize, but at historically high levels. Meanwhile, the number of new homes under construction is at an all-time high."

Bank of Montreal economist Robert Kavcic wrote that "while the current levels of starts are still within the range supported by fundamentals, a significant and sustained upward move from here could turn policy makers' heads."

But Mr. Pinsonneault interprets the data on housing starts to mean that condo developers will slow down, and he doesn't expect to see starts rise from here in the near term.

Of note: while developers might be scaling back out of caution, it's also possible that market dynamics are forcing them to scale back. For instance, banks generally require developers to pre-sell more than two-thirds of the of condo units before they'll dole out construction financing for a building. It's quite possible that developers are being constrained by a lack of sales, as opposed to being cautious or prudent.

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