Montreal, Canada

Is the big rally in lumber futures foretelling a resurgence of U.S. housing construction?

Lumber futures hit their highest levels in almost five years on Tuesday to close at $315.30 per 1,000 board feet.

Unfortunately, the trend remains markedly bearish for housing, new starts and construction activity. Building permits — an indicator for future construction, declined 10% to a 562,000 annual pace in January.

The long awaited recovery in housing and the big bull market that some investors expect, won’t happen any time soon. The only bull market is in foreclosed sales. The government’s home-tax credit, which expired last year, gave a short-term boost to the market but buyers remain elusive as the recovery in jobs and manufacturing is tepid.

Canada, however, is still hot. New starts, existing home sales and commercial property prices remain strong after a brief decline in 2009.

Canadian lumber exports are booming, mainly from British Columbia to China. The Chinese remain Canada’s second biggest export market for lumber and, unlike the United States, tariffs and trade disagreements are never an issue because the Chinese need the supply.

Lumber, along with copper, is usually a pretty good leading indicator of economic activity. But you’ve got to wonder how much of this rally in raw materials has more to do with the Fed’s QE II than underlying demand. By the time June rolls around, we should have a clearer picture. That’s when Bernanke’s latest money-printing blitz draws to an end.