07:21 AM EDT, 08/19/2024 (MT Newswires) -- Canadian housing starts rose to a stronger-than-expected 279,500 annualized in July, the highest level since June 2023, noted Bank of Montreal (BMO) after Friday's data from the Canada Mortgage and Housing Corporation (CMHC).

This is an impressive show of resilience given the subdued resale market and shows that builders continue to crank out just about as much new supply as they can given capacity constraints and market conditions, said the bank.

Urban single-family starts were little changed at 43,800 in the month, while multis jumped to 217,000. That reading on multis is just shy of the highest since at least 1990 -- there were three higher single-month readings since 2021.

Alberta had a very strong month, and starts in the province have pushed above 50,000 annualized for the first time since 2015 -- that was the tail end of the last real oil boom. That province's population is growing by more than 4% y/y with "torrid" inflows of both international immigrants and interprovincial migrants, pointed out BMO.

Interestingly, much of this strength was in Ontario as well, where there is already a clear overhang of resale inventory on the market and little investor demand at current price/interest rate levels. A few things help explain this seeming disconnect between the resale market slowdown and still-firm building activity:

-- Construction activity has already ebbed in Ontario, with the 12-month average for multi-unit starts running at 67,000, or down 13% from the 2023 high. So, some cyclical weakness has already been reflected in lower trend starts activity -- the bank recalled that multi-unit starts do swing "wildly."

-- Purpose-built rentals/affordable housing have been pushed hard through various policy channels, and this accounts for a growing portion of new construction. The number of units under construction (in Toronto) for homeownership has fallen by almost 20% since early 2023, while that for rental purposes has risen to record highs. This dynamic is probably taking some cyclicality out of residential constriction, which is usually a highly cyclical sector.

-- Canada has, and always has had through this period, excess demand for housing (that's different than a lack of supply).

Residential construction activity remains sturdy in Canada despite the clear slowdown in the resale market, according to BMO. The fact that such a cyclical component of the economy hasn't buckled under sharply higher borrowing costs suggests that the more structural forces still at play are outweighing some pockets of weakness.