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Don't get too down about Wednesday's mildly disappointing U.S. new-home-sales report. The market with the most direct stake in those numbers – namely, lumber – is cheering them.

Lumber futures on the Chicago Mercantile Exchange surged immediately after the report came out Wednesday morning, even though new-home sales slipped 0.3 per cent in October to a less-than-expected annualized rate of 368,000 units. Beneath the headline disappointment, the report actually contained some surprisingly bullish indications of the housing market's resiliency – even in the face of a deadly hurricane.

The fact that the new-home sales numbers nearly matched September's level, even with Hurricane Sandy almost certainly denting crucial end-of-the-month deals throughout much of the heavily populated East Coast, implies that this report is actually considerably stronger than the headline number suggests. Indeed, sales in the Northeast – where the hurricane hit hardest – tumbled 33 per cent, yet impressive strength in other regions made up for these losses.

Looking past the hurricane effects, the data reflect a continuation of a strengthening trend in demand for new homes in the United States this year. New-home sales are up 17 per cent from a year ago. Housing starts are up 41 per cent, and hit a four-year high last month – again, despite a hurricane-related dip in starts in the Northeast. Yet construction isn't even coming close to creating a supply glut: The inventory of new homes for sale in October represented just 4.8 months' supply, just a hair above September's seven-year low. That lack of supply is attracting builders, as building permits are up 30 per cent in the past 12 months.

All of this activity must be comforting to lumber producers – including those in Canada, who are heavily dependent on the health of the U.S. market. Canadian sawmills supply roughly 30 per cent of the lumber consumed in the United States; about 40 per cent of all lumber produced in Canada is exported to the U.S.

The recovery in U.S.. home building has lit a fire under North American lumber prices; CME lumber futures have soared nearly 25 per cent in a little over a month, and have more than doubled in the past 12 months. At the current price of nearly $340 (U.S.) per thousand board-feet, most sawmills are suddenly looking at profits that simply weren't there a few months ago (the average break-even price for lumber production is roughly $250).

Hurricane Sandy itself has contributed to the recent price run-up, given the repair and rebuilding needs generated by the staggering damage the storm inflicted. But the hurricane-related price response shouldn't be viewed as fleeting; those rebuilding projects are going to take months, if not longer. Meanwhile, the momentum in the U.S. housing market should support prices well north of $300 next year – even if a slowdown in home construction takes hold in the much smaller Canadian market.

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