The U.S. housing market just got the best news it has received in many years. Sales of new single-family homes jumped 11.0% month to month in June. New home sales have been trending upward throughout 2009. At 384,000 units, they are still exceptionally low − for example, in mid-2005, they were nearly 1.4 million − but they have been trending gradually upward throughout this year. Furthermore, they are only one-half of the story.

Number-of-months Inventory of Unsold Units

New sales have to be looked at in connection with the number of unsold units on the market. The number of unsold units was -4.1% month-to-month in June. Their current level of 281,000 units is low in a historical context, well below earlier in this century. The combination of stronger sales and fewer unsold homes has had a strong positive impact on the number-of-months inventory, which has dropped to 8.8. This is about double what it should be, but at its peak in January, it was three times higher than normal.

The improvement in U.S. new home sales is being driven by low interest rates, bargain prices and the $8,000 first-time homebuyers tax credit. It is an important lead indicator for future new home starts and stronger on-site activity levels in the residential sector.

Canada’s Forestry Sector

There is an international aspect to the improving housing market in the U.S. For Canada, it holds out the prospect of better times ahead for the forestry sector in many provinces. Increasing lumber exports should be the result, although there will be obstacles in the form of the strong-valued loonie and the usual objections to imports from U.S. sawmills.

China’s Domestic Economy and a Housing Boom

It is also interesting to note that an improvement in housing markets is one of the primary forces behind China’s improvement in GDP growth (+8% year over year) in the second quarter of this year. To finance its massive infrastructure program, China is increasing its money supply even faster than in America. Loans in China in the first half of this year were double what they were during the same period last year. There has been a spillover effect on the consumer spending side that has seen auto sales accelerate. A boom in housing markets is also appearing, which has already led to worry about a bubble effect.

Stronger housing markets, more so in China than is likely to be the case in the U.S. for a while, are nevertheless important because they lead to more demand for a whole range of products such as home appliances, electronic equipment, drapery and carpeting, that in turn fuel the need for basic commodities. The competition for raw materials will soon be heating up and when you think commodities, that’s when Canada comes to the forefront.