Housing starts climb to highet levels since October 2008

New home construction rose to almost 200,000 units in February, a light at the end of the tunnel for buyers seeking relief from a red-hot sellers' market, analysts say.

Canada Mortgage and Housing Corporation reported Monday that housing starts climbed 6.1 per cent in February to a seasonally adjusted 196,700 units, the highest level since October 2008, driven largely by a spike in Ontario, where starts soared 28.6 per cent from the month before.

Home builders in Ontario and British Columbia, are racing to put supply on the market before the harmonized sales tax kicks in on July 1, said economist Pascal Gauthier, of TD Economics.

Added pressure is coming from buyers concerned about tighter qualifying standards on mortgages, which take effect April 19, and higher borrowing costs expected in the second half of the year.

But February's housing starts show that supply is finally firming up at the same time that demand is poised to ease, Gauthier said.

"Come the second half and into 2011, it's likely to be a friendlier environment for buyers . . . just on the supply/demand balance," he said.

With new-home supply rising and resale listings following suit, "price growth is going to soften up a bit," Gauthier said.

"If you're a buyer you should exercise patience and look at the fundamentals. The five-year rate isn't going to shoot up 100 basis points overnight."

February's activity was led by a 243 per cent month-over-month pop in urban multiple units in Toronto, following a much lower number in January. Nationally, urban multiple unit starts - a typically volatile segment - grew 19 per cent.

New home construction has now roared back 76 per cent from the recession-level cyclical low of 110,000 units, said BMO Capital Markets economist Robert Kavcic.

Nevertheless, the froth in the market - which drove up prices almost 20 per cent in 2009 and which many have warned is the beginning of a housing bubble - seems only to have stirred more interest in buying, according to a poll released Monday.
RBC's annual home ownership study showed the number of Canadians intending to buy a home in the next two years has risen to 10 per cent from seven per cent.

Meanwhile, respondents think prices will continue to rise in 2010, and their belief that housing is a good investment also climbed, to a 12-year high, with more than a quarter convinced their home will be their primary source of income when they retire.

In the meantime, few expect the current level of housing starts to be maintained.

"In the second half of the year, we should observe a level of activity near the demographic needs of roughly 165,000," said National Bank economist Matthieu Arseneau.

Starts in Atlantic Canada rose 14.3 per cent, the Prairie region increased 10.8 per cent and British Columbia was up eight per cent. Meanwhile, Quebec saw housing starts decline 14.1 per cent.

Ontario and B.C. contributed 51 per cent of February's gains, TD's Gauther said.

Housing starts in rural areas totalled 17,600 units in February, down from 21,100 the previous month.

(prepared by John Morrissy/Financial Post )