TORONTO — Canadian housing starts unexpectedly dropped to 211,300 units in September, down slightly from 216,600 in August, but the new-home market continues to fare better in Canada than in the United States.

Economists said that while last month's decline was a disappointment, it was attributable to the volatile multiple-starts segment -- consisting of condominiums, rental apartments and townhouses -- which fell to their lowest level since July 2004.

That stood in sharp contrast to single-family units, a more stable housing measure, which edged upward in September for the fourth straight month, reflecting fundamental strength in the housing market, the Canada Mortgage and Housing Corp. report shows.

"Certainly, the singles suggest the game isn't over yet,'' said Bart Melek, senior economist with BMO Capital Markets.

"At the end of the day, anything over 200,000 (units) in Canada is indicative of a very strong housing market.''

And despite the backslide, Canada's housing market continues to be more resilient than its American counterpart, with housing starts dipping 6.6 per cent year-over-year in the third quarter, versus a much steeper 20 per cent drop in the United States.

That softer slump is indicative of more robust job creation north of the border, especially in resource-driven western provinces like Alberta and British Columbia, and relatively tame mortgage rates.

"At the same time, we're getting fiscal stimulus from lower taxes from the Feds,'' Melek said.

"We've just posted a huge ($13-billion) surplus in Canada and I suspect that much of that will translate into lower taxes for corporations and individuals as the year unfolds. So the Canadian consumer should do fairly well.''

In its report, CMHC said the annual rate of urban starts fell 2.9 per cent to 176,900 units in September, with urban multiples declining seven per cent to 81,200 units and singles inching up 0.8 per cent to 95,700.

Urban starts fell 10.8 per cent in Quebec and by 4.3 per cent in Ontario in September, while modest increases were recorded in British Columbia and the Prairies, where urban starts were up 1.4 per cent and 0.5 per cent, respectively.

In the Atlantic region, urban starts were up 15.3 per cent, CMHC said.   

"In the U.S., starts are down in every region,'' TD economist Sebastien Lavoie said in a note to clients. "Slicing starts by housing type reveals a similar story. Both starts of multiple and single units are cooling off rapidly in the United States.''

Looking ahead, overall Canadian housing activity is expected to cool further for the rest of this year and next due to crumbling affordability, a rise in home construction costs and a forecast increase in multiple-unit supplies.

"There's also more competition for home builders coming from the existing home market, which should cool things off as well,'' said Adrienne Warren, senior economist with Scotiabank, who pointed to a rise in the number of resale listings.

"But I would say you're still looking at relatively buoyant conditions in most parts of the country, and still very buoyant out in the West.''

In Quebec, housing starts in urban centres of more than 100,000 residents dropped 23 per cent in September, compared to September 2005. There were a total of 2,927 starts in September 2006 compared to 3,822 in the same month one year earlier.

The drop was felt both in individual homes and multi-unit buildings.

"The September results and those for the first nine months conform perfectly to the forecast we published one year ago,'' said Kevin Hughes, an economist with Canada Mortgage and Housing Corp., adding he is not surprised by the numbers.