Canada's housing market has started to cool, with government data released earlier this month showing housing starts falling 14 per cent this summer and prices rising at their slowest level in more than six years.

The decrease in housing starts marked only the fourth time in 51/2 years that monthly numbers have come in below 200,000 units and the sharpest decline since last December, according to the Canada Mortgage and Housing Corp. (CMHC).

New-home construction dropped to a seasonally adjusted 186,500 units in July compared with 215,900 in June. Most analysts were expecting about 210,000.

One CMHC analyst says people shouldn't read too much into the lower numbers.

"After a strong first half of the year, the volatile multiple (unit) segment is now readjusting itself," Brent Weimer, a senior economist with the CMHC's market analysis centre, says in a news release. "This brings activity since the start of the year closer in line with our 2008 forecast of more than 200,000 housing starts (average per month) for the seventh consecutive year."

Most of the lower activity in the multi-family dwelling sector was in Toronto, where construction cranes have dominated the skyline for years. Unadjusted housing starts showed 498 units were started in July, a drop of 30.7 per cent from the 719 reported during the same month in 2007.

"You have to be careful looking at those kinds of numbers, though," says Jason Mercer, CMHC's senior market analyst covering the Greater Toronto Area (GTA).

"The construction timing of large-scale high-rise projects has to be taken into account. You can have buildings that are 200 or 300 units that suddenly start construction during a month and it can seriously affect the numbers.

"Another factor is the time lag. Construction is usually about a year or two behind sales because most banks want to see a good majority of the project sold before they will finance construction."

Mercer says it's more important to look at the change in year-to-date housing starts. For the GTA, the 15,832 multiple family-unit starts for the first seven months of this year are about 57.1 per cent higher than the same time period last year.

Jane Renwick, president of Urbanation, a Toronto consulting firm that tracks the local condominium industry, says there isn't that much need for alarm. "I definitely wouldn't panic. During the second quarter of 2008 we had 20 buildings completed in the Greater Toronto Area, which adds up to 3,360 units. During the first half of this year there were about 30 buildings, or 4,500 units, which is good.

"We're still seeing a healthy supply-to-demand, with MLS listings showing the average number of days on the market about 30 days. That's incredible in a market like Toronto that you can put your unit on the market and sell it within a month," she says.

"Prices are still trending upwards, while your average rents are staying the same. For investors, you have to look at what your tolerance is for negative equity. As an investor, I would hold right now."

Renwick says people who are buying a condominium to live in should look at a different set of criteria. "It depends on the reputation of the builder, what amenities are important to you, what kind of an area it is," she says. "If it's a good deal for you, go for it."

But the day the CMHC data became public, Statistics Canada released information of its own showing new-home prices increased at their slowest pace in more than six years in June. Contractors' selling prices were up 3.5 per cent between June 2007 and June 2008. That's down from the 4.1 per cent year-over-year national increase recorded in May.

It's also the slowest growth rate recorded since March 2002, when year-over-year price increases inched up 3.4 per cent.

Year-over-year prices were still up 16.3 per cent in Saskatoon compared with June 2007, and 0.1 per cent in Calgary and 1.6 per cent in Edmonton, according to Statistics Canada.

"That's caused by migration patterns," says Richard Corriveau, a regional CMHC economist based in Alberta. "People who moved to Alberta to get jobs found it was tougher than they thought, or had difficulty getting housing and are moving back home. The largest culprit for the decline in Alberta is migrants. Another factor is the abundance of listings. You have excess supply right now in some cases. We are predicting it will be stronger towards 2009."

Corriveau says Manitoba and Saskatchewan should be stable through the rest of this year, while Alberta continues to be volatile.

Year-over-year price changes in some British Columbia municipalities were mixed. Vancouver was up 1.8 per cent, while Victoria remained steady at 0.4 per cent.

Chris Erb, president of the Canadian Homebuilders Association of B.C. and owner of a Nanaimo-based construction company, says speculators are partly to blame.

"You had people who saw there was money to be made in the construction industry and they got into the business as fast as they could. Now, there is a bit of excess inventory and they are starting to panic," he says.

"It's not all doom and gloom like you read in the media sometimes, but things aren't fantastic right now either. It depends on where you are."

Erb said markets traditionally go in cycles and this will eventually work itself out.

(David Hatton can be contacted at hatton@businessedge.ca)