Canadian housing starts declined slightly in September to 234,600 from 237,200 in August, according to the Canada Mortgage and Housing Corp.

Despite the decline CMHC says, “Consumer confidence remains high and consumers continue to look positively toward the future. This combined with low mortgage rates continues to support healthy levels of activity in the housing market. “

Nationally, urban single starts were 100,500 units at seasonally adjusted annual rates in September, unchanged from the previous month. Though, Canada-wide, year-to-date actual urban single starts were down 3.3% compared to the same period in 2002.

A big drop in August building permits reported earlier this week had economists fretting over the level of September starts.

Economists had worried that starts could drop as much as 5%. “Consumer confidence remains firm and mortgage rates remain low, helping to support the demand for housing,” says BMO Nesbitt Burns. “Even though new house prices are rising faster than inflation, the favourable interest rate environment continues to keep housing affordable. Accordingly, Canadian homeownership rates remain near record levels.”

“Given September’s unexpectedly strong showing, the third quarter rate of housing starts (at 233,000 annual units) now marks the highest quarterly level seen in Canada since the first quarter of 1990,” says RBC Financial. “As such, residential construction is once again expected to put in a strong contribution to third quarter economic growth, reinforcing the fact that the slight decline in overall growth during the second quarter was temporary and not indicative of a trend.”

However, RBC warns that the strong performance of housing in the third quarter is also likely to mark the cyclical peak for activity. “There is not much room left to grow for new housing construction in much of Canada, given that most of this year’s activity has been concentrated in the more volatile multiple sector. All of this growth has contributed to a steady increase in the supply of new condos, particularly in the Toronto region, which will undoubtedly need to be worked off.”

This report leaves the Bank of Canada unlikely to curt rates next week. “The resiliency of the housing market has been a great source of support for the Canadian economy, which has suffered from several shocks through 2003. This report does not make it any easier for the Bank of Canada next week, as the interest-sensitive sectors of the economy remain quite robust, needing little further rate relief,” Nesbitt says.