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Hamilton's Carlton Street condo project.Glenn Lowson/The Globe and Mail

Canadian home building spiked in July, as developers broke new ground on condos in major cities and oil-producing regions, marking the second straight month of robust activity after work stoppages from the novel coronavirus pandemic.

Housing starts increased 16 per cent in July compared with June, to a seasonally adjusted annual rate of 245,604, according to the Canada Mortgage and Housing Corp. That was the highest level since November, 2017, and another month that defied the agency’s forecast for a huge decline in building.

New construction on condos and other multiresidential buildings occurred in the major real estate markets of Toronto and Vancouver, other cities in Southern Ontario and even regions hit hard by the drop in oil prices.

In Toronto, housing starts jumped 22 per cent to 48,466 units on an annualized seasonally adjusted basis. New construction also climbed in more affordable areas outside of Toronto, such as Hamilton and the St. Catharines-Niagara area.

June home building rebounds but CMHC says risks still remain

In Hamilton, housing starts more than doubled from June to July after several months of weakness. The city, about a one-hour drive to downtown Toronto in little traffic, has become attractive for first-time home buyers who cannot afford Toronto, where a detached house now costs well over $1-million.

In Calgary, Edmonton and Saskatoon, cities that have suffered from two oil price crashes in a decade, new construction jumped from June to July, but remained below prepandemic levels. In Atlantic Canada, housing starts more than doubled in Halifax, Saint John and Moncton.

“There is a bit of catch up,” said Bob Dugan, CMHC’s chief economist, adding that some regions were rebounding from a steep decline shortly after the pandemic started in March.

The increased building comes as residential property resales and home prices climb due to strong demand and record-low mortgage rates.

Plazacorp, a builder with a dozen projects in the Toronto region, is getting ready to launch several more after this year’s strong activity. Its launches include houses and townhouses, as well as two condo towers in Toronto, including a 48-storey skyscraper downtown.

“When the resale market is strong, that gives us the confidence to launch new projects,” said Scott McLellan, Plazacorp senior vice-president. “That means there is demand for it. Someone needs to buy something.”

Although the resale market indicates current demand. Housing starts are often a reflection of earlier demand. Developers break ground on new condo buildings after the majority of their units have been sold before construction to ensure that there is demand and financing for the building. It takes about 10 to 15 months to presell a new building and start construction, said Mr. McLellan.

“There is a long lag between the sale and construction. So a lot of the strength we are seeing are sales that happened prior to the pandemic,” CMHC’s Mr. Dugan said.

Regardless of the lag, Mr. Dugan said he was surprised by the strength of the property markets in June and July.

However, he said said two months of strong activity was not going to alter CMHC’s forecast for a downturn in building and home prices, given the state of the economy and unpredictability of the pandemic.

CMHC’s outlook, which was released in May, predicts housing starts could decline much as 75 per cent from peak to trough in its worst-case scenario, and home prices could fall between 9 per cent and 18 per cent.

“I still worry about the downside risks,” Mr. Dugan said.

Those risks include a second outbreak of coronavirus cases and another debilitating lockdown; high unemployment; no immigration; homeowners unable to resume mortgage payments after their six-month deferrals end; and the transition from Ottawa’s pandemic financial aid to employment insurance payouts.

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