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Housing starts taper off in December

TORONTO - The construction of new homes in Canada hit its highest level in nearly two decades last year, but activity tapered off significantly in December.

The seasonally adjusted annual rate of housing starts in December fell to 187,500 units from 233,300 in November, the Canada Mortgage and Housing Corporation (CMHC) said on Wednesday. That figure was lower than the predictions of most economists.

"Growth in 2007 housing starts was driven by low mortgage rates, solid employment, income growth and a high level of consumer confidence, said Bob Dugan, chief economist at CMHC.

Despite the surprise drop in December, the slight increase in full-year housing starts confirmed vastly differing housing situations on either side of the 49th parallel. New home starts fell about 25 per cent last year in the United States.

Last year marked the sixth straight year housing starts broke the 200,000 barrier. The demand fuelling the strong activity also put upward pressure on home prices in 2007.

"Strong price gains recorded in 2007 began to stress affordability, suggesting that Canada's housing market may cool a bit in 2008," RBC senior economist Dawn Desjardins wrote in a morning note.

After strong figures in October and November, the volatile multiples segment and single-detached starts fell in December mainly due to harsh winter weather, the CMHC said.

The CMHC differentiates between construction starts on multiple dwelling units such as condos or townhouses, and detached single units, such as bungalows or two-storey houses.

The seasonally adjusted annual rate of urban starts slipped 23 per cent to 151,600 units in December, urban singles fell 12 per cent to 85,600 units and multiple starts were down 33 per cent to 66,000 units.

The CMHC multiplies monthly new home starts by 12 to arrive at its seasonally adjusted figures.

Millan Mulraine, economics strategist with TD Securities, wrote in a note: "Clearly this was a very weak report, driven by a combination of the unseasonably cold weather in December, the tightening credit conditions, and the new land transfer tax in Toronto, which have all contributed to dampen the pace of housing construction during the month.

"We suspect that there will be a slight rebound in January as weather conditions have improved. Looking ahead, we expect the Canadian housing market to remain in fairly good shape in 2008, with starts moderating slightly to a pace of around 205K-210K."

Financial Post with files from CanWest News Service

CanWest News Service 2008 (Wednesday, January 09, 2008)