The Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) continues to point negative in mid-April 2015, as the housing market has yet to bolster demand. Weather is no longer a viable reason for subdued demand. With nearly one-third of the year in the books, housing forecasters had better start revising their pre-year forecasts down.
Many contend, and I agree, that the wood commodity market is the canary in the coal mine when gauging the housing market. If you also believe that, then it is time to be concerned. Over the last 30 days, the Index dropped $9.11 per thousand (or 3.0%) with declines in the vast majority of the items.
In the lumber portion of the Index, wide pine products were the only items to increase in price, with increases ranging from 6.9 to 11.8 percent. This appears to be more of a supply issue with logs (due to rainy weather) than a push from demand. Spruce dimensional lumber gave back $20 plus per thousand with studs retreating in the $10 plus range. Considering the thin inventories in the supply chain, there is reason for concern.
The plywood segment of the Index dropped 2.0 percent to $275.11, as OSB sheathing retreated on average around 1.0 percent with CDX pine plywood falling on average 3.0 percent. CDX pine plywood has not participated in the last few months in the pricing retreat, and these price drops may be a great indicator of the health of the housing market in the Southeast.
It is really hard to figure—are these price declines minor blips or significant trends? Warm spring weather and low interest rates should spur the housing market, provided buyers can obtain financing and navigate through the paperwork minefield. If builders do not see a robust pickup in business in the next month, it appears this year could be a repeat of a disappointing 2014.
Keep in mind, inventories in the supply chain are woefully low due to the spotty demand, and a sudden increase in starts could create some price volatility. Be very careful on long-term quotes. The indication right now is for more of the same with price deflation spreading to other areas like drywall and roofing. It really depends on housing demand.
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 past Associate Vice President of the Home Builders Association of Lake County. To contact Magruder, email him at