The Canadian housing market showed signs of cooling in December, with housing starts coming in lower than expected despite warm weather and a solid pace throughout 2015.

The Canada Mortgage and Housing Corp. said Monday the annual pace of housing starts fell sharply to 172,965 in December compared with an upwardly revised 212,028 units in November.

That compared with the roughly 200,000 starts that had been expected in December by economists.

The slowdown came as the rate of urban starts fell 19.1 per cent in December to 159,007 units.

"Although we're ending the year on a soft note, housing was one area that surprised to the upside in 2015, with the 194,000 average building pace up around 10,000 from the prior year," CIBC Capital Markets economist Nick Exarhos said in a research note.

"Furthermore, because of the general acceleration in the second half of 2015, residential investment is still likely to provide a modest catalyst to growth in the next few quarters as new projects are seen through to completion."​

Volatile multi-units

The rate of Canadian housing starts fell 18 per cent in December, with big drops in Ontario (down 39 per cent), the Atlantic Provinces (35 per cent) and the Prairies (36 per cent), TD Economics economist Diana Petramala said in a note.

"Most of the weakness was concentrated in the highly volatile multi-unit segment (-27%) across major urban areas," she said. "Single-detached urban starts remained flat at 57,743."

'The relatively stable national headline hides some tidal shifts below the surface.' - Robert Kavcic, BMO

BMO senior economic Robert Kavcic noted that a big portion of the drop came from Toronto, which he said might be a relief for policymakers because starts were running too hot earlier this year. The market's fundamentals remained solid, he said.

Kavcic said Alberta's big dip (39 per cent) was its biggest drop since 2008, reflecting the weak demand in the province.

"Canadian homebuilding was very modestly higher in 2015, but the relatively stable national headline hides some tidal shifts below the surface," he said. "We suspect 2016 will continue to see weakness in the Prairies mostly offset by solid residential business conditions in markets such as Toronto and Vancouver.​"

Vancouver, in fact, had its highest number of housing starts since 1993.

Winter season often soft

Scotiabank says the December numbers aren't considered telling of a larger trend because little actually happens from December to March.

"Indeed, weak seasonally adjusted monthly housing starts numbers in the Dec.-March period in 2015, 2014, 2013, and 2011 have had little meaning or carry-over into the actual amount of housing starts in each of those years once the dust settled," the note, signed by vice-president Derek Holt and financial markets economist Dov Zigler, said.

The Canadian housing market is being closely watched by economists for signs of slowing. Low interest rates have helped fuel demand in some markets; however, the drop in oil prices have hurt others.

The Canadian Real Estate Association has forecast average house prices in Alberta, Saskatchewan and Newfoundland and Labrador to fall this year.

However, the industry association has predicted the national average house price is expected to gain 1.4 per cent in the year.

Canada Mortgage and Housing said rural starts were estimated at a seasonally adjusted annual rate of 13,958.

The six-month moving average of housing starts was 203,502 units in December compared with 208,204 in November.