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A man works on a new construction home in Kitimat, in northwestern British Columbia, on April 13, 2014.

Julie Gordon/Reuters

New home construction in Canada topped economists' expectations for July.

The strong showing suggests that builders are undaunted by the potential for a real estate slowdown.

A number of economists have been saying for some time that more homes appear to be being built than demographics suggest are required, and economists generally have been forecasting a moderation in housing starts. But low interest rates continue to fuel demand in the housing market, giving builders an incentive to keep up a brisker pace than expected.

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Canada Mortgage and Housing Corp. said Monday that the number of new homes on which building began during the month of July equated to 200,098 housing starts on an annualized basis. The consensus forecast among economists called for 193,000 housing starts, which would have been down from 198,000 in June.

June's number had also defied economists' expectations, coming in much higher than expected.

Housing starts have rebounded since the unusually cold winter, which had put a damper on housing activity. "This actually points to a solid increase in construction this year versus 2013," said Bank of Nova Scotia economist Derek Holt.

"The trend in construction has increased modestly in recent months due to in large part to multiple starts, which have strong variability from month-to-month," CMHC's chief economist Bob Dugan said in a press release. (Multiple starts refer to buildings with multiple units, such as condos, rather than detached homes. CMHC counts all of the units in a condo building as starts in the month in which construction begins on the building.)

"Nevertheless, CMHC continues to expect a soft landing for the new home construction market in Canada," Mr. Dugan stated.

Bank of Montreal economist Benjamin Reitzes pointed out in a research note that most of the gains last month came from Ontario, "where starts surged 21 per cent, with the bulk of the increase in multis and in Toronto.

"That won't help ease fears about condo overbuilding," he wrote.

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But he concluded that "Canadian homebuilding is trending toward the upper end of estimates of demographic demand but isn't at worrying levels just yet."

Housing starts have now gained strength for four months in a row, and starts during the first seven months of this year are now slightly higher than during the same period last year, economists at Royal Bank of Canada noted.

"While the persistence of low mortgage rates has likely contributed to underlying housing demand remaining firm – with home resales and housing starts continuing to post solid gains – we anticipate that housing affordability pressures will increasingly weigh on housing demand and housing market activity will resume a moderating trend in the second half of 2014," the RBC research note stated. "The slowing in activity for the remainder of the year will help offset the earlier strength with our forecast calling for housing starts to come in at a 186,000 pace for 2014 as a whole (compared to 188k in 2013) before slowing to levels slightly below the rate of household formation…"

Economists at Toronto-Dominion Bank said last month that the market is still considered to be "at least moderately overbuilt," largely due to condos, and predicted that price growth will cool.

"Builders will respond to higher inventories and lower price gains by scaling back construction activity, with housing starts trending down to 175,000-180,000 units [annualized] over the next 12 months – a pace supported by underlying fundamentals," they forecasted.

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