Whole House Commodity Index 07-15-2014

web wh graph JPG JULY 2014

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for July is firmly strapped in the rollercoaster of uncertainty. The 0.4% drop in price in June was reversed in mid-July to a 0.7% increase to $30,423.25, which is a record high. Over the last three months, pricing has bounced in a narrow range; however, strength in plywood and spruce products fueled the latest incline in the pricing rollercoaster.

Most dealers and builders are growing increasingly frustrated with the construction market’s lack of consistency, reminding many of a misfiring motor. While pockets throughout the country and state are performing well, others are down. There seems to be a continuous change of who is up and who is down.


For most, the root cause of this uncertainty lies in Washington, D.C. An incoherent housing policy coupled with a daily crisis or scandal has left many potential buyers on the sidelines. Furthermore, the biggest challenge to a full-fledged housing recovery continues--ordinary people cannot get credit.


Unless there is a hurricane, a national emergency, or an epiphany by the folks in Washington, D.C. to work together and crank-up the economy, we can expect the rollercoaster to continue. Builders should be aware these $20 ups and downs in commodities could cost them money. Bidding projects with a little pad along with a price escalation clause is probably a good idea, just in case we get a big hurricane this year.


Here are the notable price changes in this month’s Index:

  • Wire mesh dropped 4.2% while rebar eased off 1.7%. Too much steel is being imported.
  • Concrete is up 2.5% on a mid-year increase, and more may be on the way if the increase in bagged concrete is enforced. Concrete increases are meeting resistance.
  • 2x4 yellow pine gave back 4.8% while 2x12 pine declined 6.1% and 2x6 pine dropped 6.2%. Pine did not follow the spruce market’s increase.
  • Spruce dimensional 2x4 was up 12.5% while 2x6 spruce increased 16.7%. Heavier exports are fueling that market. Spruce studs added 6.1%.
  • CDX plywood increased 5.8% while OSB finally firmed up adding 3.6%.
  • Manufactured wood added 5.4% and 4x4 treated added 3.1%.
  • Trusses dropped 2.1% on lower pine numbers.

Whether an upward price momentum can build to sustain these increases remains to be seen. The pine market will most likely follow the increase in spruce as it tries to catch up to buyers.

Builders, be very mindful--the months of August and September are the worst months for hurricanes. One bad storm could change the market from being on a rollercoaster to a rocket; protect yourself.

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index is based on wholesale costs of the base components to build a 2,200 square foot wood frame home with a concrete stem wall in Central Florida.  The Index includes foundation, metal, concrete, block, stucco, cement, wood framing, siding, sheathings, trusses, roofing, drywall, insulation, windows, doors, trim, garage doors, and most building hardware.  It does not include décor, electrical, plumbing, mechanical, landscaping, or labor.  Because the Index uses current wholesale costs, this should be a strong indicator of the direction of building prices for the next 30-45 days.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida. Go to www.romaclumber.com to sign-up for the Index and other free market reports.  To sign-up for this information via email, contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it. .

Whole House Commodity Index 06-16-2014

graph WH 16jun14 Mchimp

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I asked this question in May: “Has the building season finally started or does this month’s Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) represent a blip on the chart?”  The answer became clear over the last 30 days--it was a blip.  The housing industry in America remains on a roller coaster; with each rise and fall, uncertainty increases. 

The June 2014 Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) decreased 0.4% to $30,214.83, as dimensional lumber and sheathings gave back increases in May.  Other than a few minor price adjustments in some foundation materials, most building materials pricing remained flat. Future activity remains uncertain.

Mid-East turmoil coupled with rumors of war are sending oil prices higher.  This could force some companies to increase pricing despite spotty demand.  Trucking continues to be a problem for most manufacturers.  If demand were strong, trucking would be cited as a major reason for price increases.

The following are the notable price movers for this month’s Index:

 1.    Rolled foundation plastic dropped 8.7%.

 2.    Rebar added 1.0% on higher steel pricing while most foundation accessories retreated 5.0%.

 3.    2x4 pine was up 8.6%, causing a price increase of 3.4% in trusses.

 4.    Spruce studs were down 3.0% while dimensional spruce gave back 9.0%.

 5.    CDX pine plywood sheathing dropped 6.4% while OSB retreated 16.3% to mid-winter pricing.

 

Most manufacturers and mills are not in the position to weather a long-term market downturn without making significant cuts in operations or increasing prices.  If the current summer slog in the market continues, expect manufacturers to curtail production and possibly idle some facilities. 

Window manufacturers continue to struggle with production issues despite the lackluster demand, and this may be a microcosm of how bad the talent levels are in the industry.  With a sluggish economy most would believe good talent is abundantly available; however, it is not.  Like many, I am concerned when housing starts finally reach the normalcy of 1.2 million.

The biggest price increase on the horizon is in cement related products.  Most of the main producers in Florida have announced sizable increases for July, and it will be determined if they will stick.  Many continue having problems getting new mining approved and rising fuel prices will feed the need for increases.

Builders, the market remains terribly uncertain and world affairs could once again wreak havoc on demand.  Hurricane season is predicted to be less intense, but it only takes one.  Be cautious bidding projects during a down market, because what goes down will surely go up. 

Have a Happy Fourth of July and God Bless America!

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index is based on wholesale costs of the base components to build a 2,200 square foot wood frame home with a concrete stem wall in Central Florida.  The Index includes foundation, metal, concrete, block, stucco, cement, wood framing, siding, sheathings, trusses, roofing, drywall, insulation, windows, doors, trim, garage doors, and most building hardware.  It does not include décor, electrical, plumbing, mechanical, landscaping, or labor.  Because the Index uses current wholesale costs, this should be a strong indicator of the direction of building prices for the next 30-45 days.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida.  Go to www.romaclumber.com to sign-up for the Index and other free market reports.  To sign-up for this information via email, contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

Whole House Commodity Index 05-15-2014

Copy-of-Graph-for-New-Home-Construction-Price-Analysis-May-2014

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Has the building season finally started or does this month’s Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) represent a blip on the chart?  The Index for May increased to $30,023.56 (or 2%) from April with many wood commodities pushing up in price. This month is a record high for the Index topping the April 2013 number of $30,023.64.

The results of this month’s Index could be deceiving because previous increases this year in other commodities due to increased fuel costs were hidden because of the very soft commodity market.  Currently, the plywood market is about 20% below the price level of last year while dimensional lumber is about 2% below.

It remains to be seen if this increase in the commodity lumber and plywood markets will have the legs for a full-fledged run as housing in many sectors of the country remains unpredictable. Three aspects affecting pricing, which cannot be ignored, are the increasing cost of fuel, lack of trucks, and new Department of Transportation driver medical qualifications going into effect on May 24, 2014.  If the housing market were at historical or predicted levels, the price of this Index would be much higher.    

The following is the list of the most notable price movers over the last 30 days.

1. Foundation wire mesh was down 2.5% with rebar retreating 1%.

2. CDX plywood added 11.1% while OSB sheathing surged 17.8%.

3. Yellow pine was up 12.9% with other pines were at par, except for wider widths, which added 2.3%.

4. Spruce studs were up 6.8% while 2x4 spruce increased 1.4%; 2x6 barely moved up.

5. Announced spring price increases in shingles pushed pricing up 6.6%; however, I don’t know if there is enough glue in the market to make it stick.  Some special "show” buys are already emerging.

6. Engineered beams got back 3.8%.

Fuel, trucking, and housing demand will determine if this market holds onto these gains.  At this point, there appears to be just minimal momentum.

One soap box I have been preaching on in regards to housing is the availability of credit for potential homebuyers.  New mortgage regulations have pushed most middle-to-lower income people out of the market. This is the reason why 45% of the total homes are sold on a cash basis and most homes purchased are mid-sized, not starter homes. 

The Obama administration announced that it has started reviewing the regulations on mortgage lending and the role of Fannie and Freddie.  It appears there has been an epiphany that there is no private solution to Fannie and Freddie, and that the country’s economic woes can be tied to a dysfunctional and over-regulated government housing bureaucracy.  It will be months before new rules are written, but maybe if some certainty and clarity can be achieved, housing could end its six-year slump.  Expect little action in the short-term, which could bolster these markets; however, at least someone has finally started to recognize the obvious.    

Builders, “uncertainty” is still the word.  The market will probably drift up-and-down until there is confidence this market is truly on the mend or some major natural disaster occurs.  Be careful in bidding because a price that is bid during a market low could pinch a few months later on the upside.

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index is based on wholesale costs of the base components to build a 2,200 square foot wood frame home with a concrete stem wall in Central Florida.  The Index includes foundation, metal, concrete, block, stucco, cement, wood framing, siding, sheathings, trusses, roofing, drywall, insulation, windows, doors, trim, garage doors, and most building hardware.  It does not include décor, electrical, plumbing, mechanical, landscaping, or labor.  Because the Index uses current wholesale costs, this should be a strong indicator of the direction of building prices for the next 30-45 days.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida.  Go to www.romaclumber.com to sign-up for the Index and other free market reports.  To sign-up for this information via email, contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Whole House Commodity Index 04-16-2014

Copy-of-Graph-for-New-Home-Construction-Price-Analysis-May-2014

 

If something doesn’t happen soon, the spring housing rally won’t begin until summer.  Professionals throughout the construction industry are growing concerned, as better weather provides no more excuses for sagging sales.   The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) decreased 0.9% to $29,738, as downward pressure in all wood commodities offset the modest increases in ancillary building products.

Supply professionals are lamenting the higher fuel costs, labor issues, and shortages of trucks and railcars.  Despite these issues, wood commodity prices have declined in the first two weeks in April.  Is this an aberration or a tell-tale sign of future housing demand?  This uncertainty is leaving many in the marketplace sitting on their hands until actual buyers show up.

The following are the notable price variations in this month’s Index: 

1. Felt increased 2.3% on higher fuel costs.
2. 2x4 narrow yellow pine dropped 4.5% while 2x6 gave up 11%. 2x12 pine was flat-to-down.
3. Sheathing retreated as CDX pine declined 4.8% and OSB gave back 8.2%.
4. Dimensional spruce decreased 6% plus, while spruce studs gave back 7.7%.
5. Truss prices dropped 1% on declines in lumber.
6. Interior doors were up about 0.5%.
7. Garage doors increased 3.1%.

What this market needs is home sales.  If there is a late spring rally in home sales, these market lows will quickly reverse course, and builders who bid projects for later in the summer at these prices could be stuck with a negative profit.  The market is certainly poised for more upside risk than downside risk. The next month will probably be the best barometer for the housing market for the year.  If buyers fail to step into the market, it could end up being a long, hot summer for many builders and suppliers.  Builders should protect themselves with an escalation clause in their contract. If you would like a sample price escalation clause tied to this Index, please contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it.

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index is based on wholesale costs of the base components to build a 2,200 square foot wood frame home with a concrete stem wall in Central Florida.  The Index includes foundation, metal, concrete, block, stucco, cement, wood framing, siding, sheathings, trusses, roofing, drywall, insulation, windows, doors, trim, garage doors, and most building hardware.  It does not include décor, electrical, plumbing, mechanical, landscaping, or labor.  Because the Index uses current wholesale costs, this should be a strong indicator of the direction of building prices for the next 30-45 days.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida.  Go to www.romaclumber.com to sign-up for the Index and other free market reports.  To sign-up for this information via email, contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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