Canadian housing starts fell 14.5% to 210,500 in March from the month before, but the sector is still expected to be a source of growth in 2003, economists said Tuesday.

The decline was in line with expectations, coming off February’s total of 246,000, which was the highest since a string of months in 1987 and reflected a surge in the number of condo projects getting off the ground in Toronto, according to RBC Financial Group.

“In March the pace of construction was expected to fall back somewhat, and it did, with Ontario starts dropping 37%, pulling the national multiples figure to a 20.7% loss,” said RBC economist Allan Seychuk. Singles starts dropped 10.2%, and are now back to year-earlier levels on a year-to-date basis.

“Nevertheless, starts remain at an elevated level, reflecting the strong fundamentals the have been powering most corners of the Canadian economy in the past year,” says Seychuk. “As expected, the housing market is easing back from its recent highs, but is still expected to be a source of growth this year. In fact, housing starts in the first quarter are up nearly 1% from the previous quarter, so homebuilding will again be a positive influence on growth. As interest rate hikes accumulate and begin to take full effect, residential construction activity will start to ebb and become a drag on growth in 2004.”

BMO Nesbitt Burns Inc. said that despite the March decline, starts remain at robust levels, holding above last year’s average. Strong employment gains, rising incomes and still-low mortgage rates should continue to provide support to the Canadian housing sector in the months to come,” says BMO chief economist Sherry Cooper. “Simply put, housing remains the single strongest sector of the Canadian economy.”

TD Bank senior economist Craig Alexander also says the bottom line is that new home construction continues to deliver a strong performance and remains a source of strength for the economy. “Indeed, housing markets continue to be bolstered by strong job creation, solid income gains and high levels of housing affordability.

The weakness in equity markets has also meant that real estate has been one of the better performing financial asset classes,” Alexander said. “Looking ahead, we continue to expect to see some moderation in home construction, corresponding to a gradual increase in mortgage rates.”

TD expects the Bank of Canada to leave rates unchanged at its April 15 fixed policy announcement date. But, it says the central bank is still expected to lift its benchmark overnight rate by 100 basis points before the end of this year and a further 75 pbs in 2004.

“Meanwhile, a sell-off in bond markets that raises yields by slightly more than one percentage point over the course of this year and next is expected to lift fixed mortgage rates as well. Given this interest rate outlook, housing starts are expected to fall to an average of 190,000 in 2003 and 180,000 in 2004. However, just like the key message from today’s data, the retreat only represents a cool down and not a major retrenchment in housing markets.”