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Canada's continuing low interest rates pushed up home construction by a surprising 12 per cent last month, with no sign that the interest rates level will be dramatically reversed.

In contrast to the United States, where there are fears that the real estate bubble will burst, Canada's strong economy continues to push the housing market beyond expectations.

Central Mortgage and Housing Corp (CMHC), the federal government watchdog of building activity, reported that construction of single family dwellings increased 9.9 per cent in September while urban multiple dwellings jumped a startling 17.8 per cent.

There had been predictions for months that the Bank of Canada would increase interest rates in line with the US. But, with the exception of a rise of one quarter of 1 per cent in July, the bank is apparently content that the economy is not over-heating.

Bank of Canada deputy governor David Longworth  said the economy was operating 'close to capacity', but that the bank was not uncomfortable with the pace of housing construction.

A slight easing of the housing market is expected by CMHC as a result of higher prices and the expectation of some slight increase in interest rates in the coming months as the bank moves to keep the economy stable.

The CMHC forecast is that strong sales this year mean the increase in home prices will moderate only slightly to 9 per cent. One significant indicator of the future may be that the growth of prices has slowed more noticeably in the country's three major centres - Toronto, Vancouver and Montreal, where the supply of available housing has moderated price increases.

Although house prices are seldom a source of happiness for buyers, there was some consolation for Canadians in the recent report of an international survey of resale house prices. The survey reported that the growth in Canadian prices over the past year was just 5.2 per cent, in contrast with the US, 12.5 per cent; South Africa, 23.6 per cent; France, 15 per cent; and Hong Kong, 19 per cent.



Low interest rates spur Canada homes market