The Canadian housing market continues its optimistic trend, with housing starts rising 5.3 per cent in September to 194,000 units on an annualized basis, according to figures from the Canada Mortgage and Housing Corp.

That's an improvement on the 183,964 starts in August, with most regions of Canada seeing an increase in construction activity.

Only Ontario saw a decline of 18 per cent in housing starts because of a steep drop in building in the Toronto area. There were 25,000 starts in Toronto in September, down from over 40,000 the previous month and 39,800 a year earlier.

In most urban areas, multi-unit projects such as condominiums and townhouses experienced growth, with starts rising 4.3 per cent across the country in September to 177,240 units. Multi-dwelling starts had fallen steeply in August, in response to a softening in condo prices.

Starts for single family homes were up 1.4 per cent to 63,535 units across the county.

Overheated sector will soon cool

Leslie Preston, an economist at TD Bank, said the firming trend in housing starts is consistent with the renewed strength seen in the existing home market this year.

However, Preston warned that Canada has had an extended period of overbuilding that could soon cool.

"Putting some perspective on today's number, the trend pace of homebuilding is 16 per cent below last year's peak," Preston said in a research note.

Statistics Canada's figures for building permits, released yesterday, show the value of residential building permits was down 5.4 per cent to to $3.9 billion in August with the number of multi-family dwelling permits down substantially.