The seasonally adjusted annual rate of housing starts in Canada in February was 246,400 units Canada Mortgage and Housing Corp. reported Monday. That is 34.5% higher than the January 2003 revised rate of 183,200 units.

“In February, the housing market continued to show a high level of activity,” said David Weingarden, senior economist at CMHC’s Market Analysis Centre. “The surge in multiples reflects the volatility typical of that sector of the market. The CMHC forecast for total housing starts in 2003 remains 205,500.”

“Brace yourselves for the slew of housing superlatives that is sure to hit the headlines after this morning’s eye-popping starts release,” says BMO Nesbitt Burns. “Canadian housing activity went through the roof in February, blowing away consensus expectations of a more moderate increase.”

Both singles and multiples rose last month, although the bulk was concentrated in the highly volatile multiple-units component, notes BMO. Starts of condos and apartments jumped 89.3%. and single starts rose 6.4%.

However, RBC warns, “The Toronto condominium market has been throwing off cautious signals for some time now as evidenced by high volumes of construction, unsold inventories, a relatively high proportion of condos being purchased with speculative motives in mind as opposed to being for occupancy, and difficulties in obtaining required returns for investors over the cost of financing.”

RBC’s forecast for 2003 as a whole is for 201,000 new homes to be placed under construction, falling to 178,000 starts in 2004. This compares to CMHC’s forecast for 205,500 and 195,100 respectively. “Both are bullish forecasts, but far less up beat than this morning’s update and we feel that rising mortgage rates and slowing employment growth will begin to eat into modestly diminishing pent-up demand for housing next year,” it says.

“The still-hot housing market is clearly great news for furniture retailers, and other sellers of the many goods and services required when buying a new home,” offers BMO. “The Canadian housing sector is still expected to cool over the course of 2003 after last year’s highs, as the Bank of Canada raises interest rates. Still, February’s results indicate that the housing sector has a lot more life left and will not be deterred easily.”

RBC says that there are several reasons to downplay the headline number in this morning’s release. “First, multiples construction is notoriously volatile and can swing sharply with a few major projects coming on line so don’t be surprised if March’s numbers retreat sharply. Second, although starts were up in most regions except Quebec, strength was nowhere near as broad based as the total number might suggest since the surge was concentrated upon condo building in Ontario. Third, while recent numbers are good in the sense that they are the strongest home construction volumes since the late 1980s, they must be placed in the context of pent-up demand after the weakness that characterized much of the 1990s, population growth over the years, and very stimulative cyclical conditions in terms of interest rates and job growth.”

“Because of these caveats, we don’t think that this morning’s release will cause much concern about the conduct of monetary policy in Canada,” concludes RBC. “Although we can continue to expect a rising rate environment over the course of 2003-04, this morning’s housing market update does not add to the urgency to tighten especially since an almost five cent appreciation in the Canadian dollar since the start of the year is doing some of the Bank of Canada’s work for them.”