Canadian housing starts jumped 2.2% in October to 237,200 units, from 232,200 in September, trumping economists’ expectations.

According to Canada Mortgage and Housing Corp., this is the second highest monthly level in 12 years.

“October’s strong results continue to reflect low mortgage rates and strong consumer confidence,” said Bob Dugan, chief economist at CMHC’s Market Analysis Centre. “High activity in the resale market also confirms that demand for homeownership remains strong while creating spill-over demand in the new home market.”

“One lesson for economic forecasters is to never underestimate the Canadian housing sector during up-cycles,” says BMO Nesbitt Burns. “Starts are easily on track to reach 220,000 units for all of 2003, marking the strongest full-year total since 1988. At the start of the year, the consensus was looking for just 189,000 starts for 2003. Clearly, housing has been one sector that has not disappointed this year.”

“As has been the case throughout much of this year, it was the multiple component – namely condominium work – that drove starts higher in the month,” notes TD Bank. It says that single unit starts remained essentially unchanged for the third consecutive month and are down roughly 10% from their year-earlier levels.

“With October’s sizzling result, only the unexpected — such as an Act of God or a major strike in the housing sector in the final two months of 2003 — can possibly prevent starts from reaching 225,000 units for the year as a whole,” TD predicts. “Even with the return of starts to lofty levels of the late 1980s, the housing market in Canada remains fundamentally healthy. More specifically, in stark contrast to the situation that prevailed in the 1980s boom, inventories of completed dwellings have stayed low, there has been relatively little speculative building, and the inflation and interest-rate environment has remained benign. In addition, recent evidence that the economy and labour market are pulling out of their mid-year lull is likely to keep housing demand and supply hopping over the next few months.”

Still, economists expect some pullback in construction activity in the near future. RBC Financial says that there are signs that residential construction may have reached a peak. Apart from the fact that the growth is being driven by condos, it notes that resale housing markets, are beginning to move into a more balanced state in some regions.

Urban single starts increased 0.3% to 100,900 units at seasonally adjusted annual rates compared to 100,600 units the previous month. This increase was reflected in all regions of the country except in Ontario where urban single starts decreased slightly. Canada-wide, year-to-date actual urban single starts are 3.8% lower compared to the same period in 2002.

The seasonally adjusted annual rate of urban multiple starts rose 5.7% to 110,400 units in October compared to 104,400 units in September. The majority of the increase occurred in Ontario with a slight increase also being observed in British Columbia. The seasonally adjusted annual rate of urban multiple starts fell in the remaining regions. Nationally, year-to-date actual urban multiple starts increased 22.9% compared with the same period in 2002.

Rural starts in October were estimated at a seasonally adjusted annual rate of 25,900 units.