Source: The Canadian Press

New home construction spiked sharply in Canada in November, but the improvement appears to be a blip centred in Ontario that will likely provide cold comfort in the new year, according to analysts.

The seasonally adjusted annual rate rose a better than expected 11.6% to 187,200 units last month, up from 167,800 in October, Canada Mortgage and Housing Corp. said Wednesday.

However, the increase was primarily due to a strong increase in urban multiple starts in Ontario — based on several major apartment projects in Toronto — that was more than enough to offset declines in all other regions of the country.

Diana Petramala, an economist at TD Economics, warned that November’s gain was not broad-based and the strong headline numbers belie some underlying softness in Canadian construction activity.

“Going forward, starts can be expected to continue to moderate from the current level as a slight oversupply in the new housing market will weigh on new home building in Canada,” she said.

The seasonally adjusted annual rate of urban starts increased by 14.6% to 163,100 units in November. Rural starts were down at a seasonally adjusted annual rate of 24,100 units in November.

Urban multiple starts went up 20.9% to 101,800 units– a somewhat volatile measure of construction activity– while single urban starts– considered a more stable economic indicator –moved up 5.5% to 61,300.

The more stable single unit home sector continues to languish, down almost 30% since the end of 2009, said Bank of Montreal economist Robert Kavcic.

“The surge in housing starts in November was almost entirely due to the volatile Toronto multi-unit sector and, as a result, some of the gains will likely be reversed in the coming months,” he wrote in a report Wednesday.

“The bigger picture continues to be one of more moderate and stabilizing building activity in Canada after a strong post-recession bounce.”

Many Canadians had rushed into the housing market during the second half of last year and the beginning of this year in advance of new mortgage regulations in April, an expected increase in interest rates and a new sales tax regime that took effect in July in Ontario and British Columbia.

That had the effect of pushing sales ahead into the end of 2009 and the beginning of 2010 that may have otherwise taken place in the spring and summer. It may also have lured buyers into paying more for homes than they would have without the sense of urgency.

Construction activity lags the resale home market by several months, but tends to follow decreased demand as builders seek to avoid an oversupply of new homes on the market.

November’s seasonally adjusted annual rate of urban starts increased 82.8% in Ontario. Elsewhere, urban starts decreased 24% in Atlantic Canada, 21.3% in British Columbia, 15.2% in Quebec and 1.5% in the Prairies.

Kavcic said the monthly average of 180,000 units in the past three months is likely where activity will settle through 2011.

CMHC, meanwhile, predicts housing starts will align themselves to demographic demand next year, which it estimates at about 175,000 units annually.

However, Petramala suggests that given expected softness in the Canadian resale housing market and a high inventory of unsold new homes, housings starts could trend as low of 150,000 units.