It is amazing what a commodity market can do in 30 days. The Ro-Mac Lumber & Supply, Inc. Wood Composite Index increased 9.5% to $341.40 per thousand with all items advancing. Maybe the spring thaw is giving way to a summer run in building, which could bolster wood commodity pricing. Momentum in late May appears to be waning for continued large increases; however, the trajectory appears upward. The market’s ability to sustain these pricing levels is the best indicator as to the health of housing.
The dimensional lumber portion of the Index increased 4.8% to $392.64 per thousand. Spruce studs were up 6.8% while dimensional 2x4-16 increased 2.0%. Wider width pines were up 2.8% to 4.5% while 2x4-16 pine increased 8.3%. Trucking continues to be a major problem in the lumber market, and this could help keep the market firm.
Sheathing products in the Index were very strong as lower inventories and pent-up demand collided. OSB sheathing added on average $33.00 per thousand or $1.06 per sheet. Standard CDX pine plywood added $52 per thousand on 1/2” and $57 per thousand on 5/8”. A price increase of $1.66 per sheet on 1/2" CDX in one month can put builders in negative territory.
Housing demand is the mover in the market. Unless an unexpected weather event occurs, pricing will probably follow housing starts. Interestingly, in many other areas of the building supply chain manufacturers are trying to hold onto pricing and put them upwards because of continued cost increases in manufacturing. Builders should expect higher prices across the board over the next month or so.
One cautionary warning for all builders in regards to pricing is that last week the Wall Street Journal reported the Obama administration is contemplating a dramatic change in course and policy in regard to mortgage rules and lending. The ability to get credit by ordinary people is the reason why the housing recession persists and the economy of the country continues to flounder. If Washington has seen the light and, indeed, loosens credit to allow ordinary qualified citizens to get mortgages then the flood gates of pent-up demand will open. The supply chain would not be able to handle a sudden surge in business and prices would skyrocket. Unfortunately, it would be very painful for those builders that bid a project in the long-term. Now is a wonderful time to make sure you have a price escalation clause in your contract.
Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida (www.romaclumber.com), and he is a former President of the Southeast Mississippi Home Builders Association, and a past Associate Vice President of the Home Builders Association of Lake County. To contact Magruder, email him at