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Pent-up demand rejuvenating home builders

In the Southeast False Creek area of Vancouver, construction workers are busy building the Olympic Village, on June 25 2008. The low- and mid-rise accommodations are intended to house approximately 2,100 athletes and officials during the Olympic Games. After the games the complexes will be converted and used as residential, office and shopping units.

JENNIFER ROBERTS/jennifer roberts The Globe and Mail

Paul Dietrich would have paid a chunk of your down payment if you bought one of his newly built houses earlier this year.

That offer is off the table.

Now, the Peterborough, Ont.-based builder is trying to work out how much he should be increasing prices for the spring, when home buyers are expected to come out in force to take advantage of low interest rates and easy mortgage terms.

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He's not the only one making plans. The value of building permits for single-family dwellings increased 10.1 per cent to $2.4-billion in October, the eighth consecutive month of gains and the clearest sign yet that Canada's housing market is emerging from a short slump.

Every province except Nova Scotia and PEI posted increases, although the value of building permits for multifamily dwellings fell 8.2 per cent to $1-billion, after a 34.3-per-cent jump in September.

New housing starts are important to the economy because they create construction jobs and spark a flurry of related spending as new homeowners make improvements and buy furnishings. The Real Estate Council of Ontario estimates that every newly built $300,000 house generates up to another $160,000 in consumer spending.

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While a rebound in the resale market has seen both sales volume and prices make up losses brought on by the recession, buyers have been less willing to venture into the new-homes market because builders haven't cut prices as deeply as individual sellers.

"Builders had been cautious, but this basically confirms the story that the Canadian housing market is coming out of its slump of the past year," said Millan Mulraine, an economics strategist with TD Securities Inc. "It's positive news for employment, certainly in the construction industry. And it's also positive news for the economy as a whole."

While the resale market set records in October, the number of new listings hasn't increased at the same pace. Inventories are at their lowest level in two years, driving up prices as bidding wars erupt in hot markets such as Toronto and Vancouver.

Home builders said they are responding to the pent-up demand, catering to those who had planned to make a purchase in the past year but decided to wait until they felt more confident about the economy.

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The proof for Mr. Dietrich has been found at his company's model homes, where traffic ground to a halt last year despite incentives such as free appliances. He's now working 70-hour weeks to keep up with demand.

"People didn't know what to make of the recession, but there haven't been a lot of layoffs here and people are becoming more comfortable," Mr. Dietrich said of the Peterborough market. "Things have picked up steadily since March, and we're booking sales three quarters out, which is unusual for us."

The recession hasn't lowered consumers' expectations when shopping for new homes, said Derek Thorsteinson, president of Parkhill Homes in Winnipeg.

"Although I expected to see downsizing in terms of square footage, it really hasn't happened at this point," he said. "We're as busy as we were last year and the sizes seem to be the same. We're averaging 1,800- to 2,000-square-foot bungalows. We can't produce plans fast enough for the clients."

The Canada Mortgage and Housing Corp. will provide more data on November housing starts today, with economists expecting the level to rise "modestly" to 165,000 units. Last April, the industry was on pace to build only 118,500.

"With the Canadian economic recovery expected to slowly gain traction in the coming months, and low mortgage rates remaining supportive to housing demand, the recovery in Canadian residential construction should gather further steam," Mr. Mulraine said.

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With files from reporter Susan Krashinsky

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