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The pace of new home construction picked up unexpectedly in February driven by strength in the condominium market in major cities, Canada Mortgage and Housing Corp. (CMHC) reported on Thursday.

Meanwhile, Statistics Canada (StatsCan) reported that building permits rose beyond expectations in January — particularly in the condo market — signalling continued strength in the multi-family dwelling category.

CMHC said the seasonally adjusted annual rate of housing starts increased to 229,737 units in February, up from 215,260 in January.

Economists had expected the rate to come in at 216,600, according to Thomson Reuters Corp. Housing starts are considered a leading indicator of how the economy is performing.

Toronto-Dominion Bank (TD) economist Rishi Sondhi said homebuilding continues to defy expectations.

“Starts are being boosted by a relatively firm economic backdrop, healthy population growth and past gains in pre-construction sales in Toronto,” Sondhi wrote in a report. “However, February’s increase was driven by the volatile multi-unit sector, leaving some scope for reversal in March.”

Sondhi noted that although the pace of starts has held up so far this year, TD expects that cooling demand in the face of restrictive policy measures and higher rates will ultimately slow starts going forward.

New mortgage rules this year mean federally regulated lenders must subject homebuyers seeking uninsured mortgages to a stress test to ensure they can continue to make payments even if interest rates rise.

The overall increase in housing starts for February came as the seasonally adjusted annual rate of urban starts increased by 7.1% in February to 211,211 units.

Multiple urban starts increased by 15% to 154,535 units while single-detached urban starts fell by 9.8% to 56,676 units. Rural starts were estimated at a seasonally adjusted annual rate of 18,526 units.

The six-month moving average of the monthly seasonally adjusted annual rates of housing starts was 225,276 units in February compared with 224,572 in January.

A separate report from StatsCan revealed that municipalities issued $8.4 billion in building permits in January, up by 5.6% from December.

Economists had expected the value of building permits to increase by 1.3%, according to Thomson Reuters.

The increase was due in large part to permits for multi-family dwellings in Ontario that rose by 71%, or $404.3 million, to $974 million in January, more than offsetting the 39.7% drop reported the previous month.

Overall, residential permits climbed by 5.9% for the month to $5.32 billion, while commercial building permits gained by 8.9% to $1.7 billion and institutional permits increased by 19.2% to $834.9 million.

Permits for industrial buildings fell by 18.6% to $554.5 million.