Analysts were surprised by the strength of Canadian housing starts reported this morning.

Housing starts rose by 3.1 in April, considerably beating expectations for a 1.3% gain. The gain was concentrated in multiples, up 15.2% in the month, while the important single starts declined for a second consecutive month. By region, starts were strong in the Atlantic provinces and Alberta, with Ontario the big weak spot.

RBC DS Global Markets says, “Housing activity has been a key source of strength for the economy in Q1 and there is little evidence that activity is fading. A host of factors favour continued residential construction activity including low inventory levels, stronger house prices, lower mortgage rates and rising incomes.”

But BMO Nesbitt Burns is cautious about the continued strength, “There are at least two caveats to the broad showing of strength in today’s results. First, all of the gain was concentrated in the volatile multiple-unit sector. The more important single-family group declined again, although it is still in line with the average over the past year. Second, yesterday’s big reported decline in building permits suggests activity will cool somewhat in the months ahead.”

DS admits that while today’s data is encouraging, it concludes, “Nevertheless, this report does not alter our view that the Bank of Canada will cut rates by 50 bps on May 29.”