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Construction work being done on a condominium site at Bathurst Street and Fork York Blvd. in Toronto on May 29, 2012.

Deborah Baic/The Globe and Mail

Canada's housing starts defied expectations in August, rising when economists were anticipating a decline, largely because of Toronto's condo market.

The seasonally adjusted annual rate of housing starts nationwide amounted to 224,900 units during the month, up from 208,000 in July, Canada Mortgage and Housing Corp. said Tuesday.

The market had expected the figure to drop to 200,000 units, RBC economist David Onyett-Jeffries noted.

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But, rather than slowing down, August's pace of new home construction extended a streak of 200,000-plus units being created to nine months in a row. So far this year housing starts have been about 15 per cent above last year's levels, led by a surge in multiple-unit, or condominium, construction, Mr. Onyett-Jeffries said.

"The increase in housing starts in August was the result of a few, large, multi-unit projects in the Greater Toronto area," CMHC deputy chief economist Mathieu Laberge stated in a press release. "This increase is primarily a reflection of the high level of pre-sales in some of these large multi-unit projects in late 2010 and early 2011, which is in line with job gains at that time."

Through the first eight months of this year starts have averaged just under 218,000 units, ahead of the approximately 180,000 required by underlying demographic demand, BMO economist Robert Kavcic said. But he suggested that the strong August numbers are a "look in the rearview mirror" because construction tends to lag sales by six to 12 months. The stricter mortgage insurance rules that took effect in July have had a cooling impact on sales, and that will ultimately filter through to a more moderate pace of construction and a gradual softening in housing starts through 2013, he said.

But Jacques Marcil, an economist at TD, suggested that a real slowdown will be dependent on a rise in interest rates.

"While recent changes to mortgage insurance rules will likely limit the growth in demand for new homes, low interest rates remain an incentive for buyers to borrow and keep the housing market overvalued," Mr. Marcil said. "In the end, higher interest rates are needed to bring the Canadian housing market back to a sustainable expansion pace. We expect the Bank of Canada to make that move in the spring of 2013."

While Ontario and British Columbia both saw large increases in housing starts, Atlantic Canada had a notable increase compared to the prior month. But the numbers in both B.C. and Atlantic Canada had more to do with the fact that July's sales were low than that August was unusually high, CMHC said. "Overall, moderation in housing starts activity is still expected for the remainder of 2012 and 2013," Mr. Laberge said.

Within Ontario, multi-unit starts were up "a sizzling" 33 per cent year-over-year through August, while new construction of single homes was down 1.4 per cent, Mr. Kavcic said. "This dearth of single detached homebuilding in the GTA is one fact often overshadowed by booming condo supply."

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Alberta and Quebec were relative soft spots.

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