Real estate....."Housing starts soar in September"

Housing starts hit a 29-year high last month amid a flurry of condominium construction, though the torrid pace is expected to taper off.

Starts jumped 19.6 per cent to 278,200 units in September from August, Canada Mortgage and Housing Corp. said yesterday. The volatile condo segment led the way, most notably in Quebec, which is seeing a surge in nursing home construction.

Housing starts have defied expectations all year, and are continuing to support growth in the domestic economy. Condos have proven particularly popular as a more affordable choice for first-time buyers and as baby boomers downsize their living quarters.

As costs rise and pent-up demand cools, though, the market is expected to slow.

"Interest rates have risen, prices have increased, so affordability is declining and, at some point, that's going to have an impact on the market. The issue is when. It obviously wasn't in September," said Robert Hogue, senior economist at BMO Nesbitt Burns Inc.

He expects the annual rate of Canadian starts will slow to about 190,000 units a month in 2008 as reduced affordability begins to hurt sales.

He stressed that month-to-month figures tend to be "lumpy" because all the units on a multiple dwelling are accounted for at the same time. Still, "at some point, the condo building boom is going to start cooling off."

Activity swelled in all regions in Canada in September, led by a 46-per-cent jump in Quebec.

Last month's numbers for the Montreal region were exceptional in that they were boosted by construction starts on no less than six nursing homes in the area, said Sandra Girard, senior market analyst with CMHC.

"If the rental housing segment was this vigorous, it was thanks to the retirement home niche," she said. "With some 1,300 units enumerated in these projects, this niche therefore garnered nearly 70 per cent of the rental housing starts in September."

Still, overall housing starts in Quebec surged in September, according to CMHC statistics. Urban starts soared 86 per cent over the same period last year, with 5,442 housing units started.

Marc Pinsonneault, senior economist at the National Bank Financial, said that, excluding the anomaly of the sod turning on six nursing homes in the same month, there is nothing particular to Quebec to explain the province's housing surge.

George Pelyhe, a real estate agent with Sutton Immobelia Inc. in Montreal, said he sees a "catch-up" aspect to the strong rise in housing starts, at least in the Montreal area. "Montreal has been lagging for many years. Probably what's going to happen is that it's going to go overboard, like it always does. Montreal has a reputation for being overbuilt."

Across Canada, condo construction has been particularly buoyant, as many new buyers are opting for affordable, urban homes.

"The robust results achieved this month can be mostly attributed to increased condominium starts, which reflect strong condo sales over the past 12 to 24 months," said Bob Dugan, chief economist at the national housing agency.

He still predicts that housing starts will decrease "gradually" between now and the end of next year.

He's not alone. Last month will probably "stand as the peak this cycle," said David Wolf, chief economist at Merrill Lynch Canada Inc., in a note.

The market will soften, but it's not the beginning of the end for the sector, he added.

"The main reason, as it has been through much of the cycle, is history - most of the Canadian boom of recent years has been about making up for the past, not borrowing from the future."

(prepared by Tavia Grant and Bertrand Marotte/Globe & Mail)