Construction starts building bubble concerns

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Economists predicting a correction haven’t yet decided whether to call it a blessing or something else, but a spate of condo projects in Toronto drove the country’s housing starts higher than expected in December – almost 15,000 above the previous month’s.

“The increase posted in December was mainly attributable to the multiple urban starts, particularly in Ontario and in Atlantic Canada”, Mathieu Laberge, deputy chief economist at CMHC’s Market Analysis Centre, said Tuesday.

The exact numbers for 2011 are still being verified, but the Crown corp. is confirming the seasonally adjusted annual rate of housing starts was 200,200 units in December, up from 185,600 units recorded in November 2011.

That growth came from Canada’s cities, primarily in the form of condominium construction.

The seasonally adjusted annual rate of urban starts increased by 10.1 per cent to 181,900 units in December. Urban single starts increased by 3.8 per cent in December to 70,600 units, while multiple urban starts were up by 14.5 per cent to 111,300 units.

While Atlantic Canada contributed to those gains, urban starts in Canada’s most populous province rose 35.3 per cent. That may ultimately confirm fears about a possible housing bubble in the country’s condo market.

Last month, the Central Bank singled out that sector more vulnerable to price declines than others.
“The supply of completed but unoccupied condominiums is elevated, which suggests a heightened risk of a correction in this market,” reads a BoC economic report.

That phenomenon is already being felt by condominium investors in Vancouver,  where a glut of high-end units now sit idling, in part because of the HST, say market analysts.

While the number of new condo developments in Toronto is also on the upswing, some analysts have suggested that market is less susceptible to a correction given the strength of the GTA market, buoyed by immigration.

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