November 2018 Whole House Commodity Index

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WHOLE HOUSE COMMODITY INDEX - November 2018

by Don Magruder, CEO of RoMac Building Supply

 

The RoMac Building Supply Whole House Commodity Index (Index) declined 2.4 percent to $33,487.87, which wiped out most of the gains for 2018. The Index is only 1.7 percent more than January 2018. Unfortunately, the wood commodity markets are mirroring the beatdown of the stock market for the year. Despite two major hurricanes hitting the United States in the fall, the overall demand equation diminished any effects from these landfalling hurricanes. This is highly unusual.

The question for builders, mills, and producers heading into winter is, “What will spur housing demand in a rising interest rate environment with snow flying up north?” It appears not much. Yesterday, West Fraser Timber Company announced a 300 million board foot permanent curtailment in production at two of their sawmills. This may be the start of mills trying to curtail supply to stabilize and boost pricing.

The hardest hit portion of the Index is the wood commodities. Producers of other building materials such as roofing, drywall, doors, and windows have yet to hop on the price-reduction train claiming higher fuel and labor costs. I am not sure if this stance can be maintained if the housing market is indeed, softening. There may be some price capitulation in these areas as winter grows colder and the need for January orders increases.

Little doubt, most suppliers are working their inventories down and hampering demand because of the price declines. Many committed to European spruce earlier in the year, which is now arriving. That could keep pricing soft. Builders should expect price gyrations in a modest range as lengths and needs become more specific to accommodate just-in-time purchasing.

Here are the notable price movers in the Index since last month:

  • Wire mesh gave back 2 percent as suppliers searched for buyers.
  • 5/8” CDX gave back 15.1 percent while OSB added 2.2 percent. It appears CDX is lagging 30 days behind the OSB markets.
  • Spruce studs dropped 8.6 percent while dimensional 2x4 was off 7.6 percent and 2x6 spruce barely dropped 0.7 percent. This is indicative of suppliers only filling needs with these types of sporadic moves.
  • 2x4 pine added 8.6 percent while 2x4 pine printed down 7.6 percent. Wide width 2x12 pine gave back 2.2 percent.
  • 4x4-8 treated posts went down 1.6 percent while 2x4 treated dropped 11.0 percent.

Pricing tried to rebound in the last few days. These curtailments may stabilize pricing in the short-term; however, a cold, wet winter could be a hard obstacle for these markets to overcome.

Builders should be slow to give back pricing to clients that were quoted earlier in the year, because many lost money on projects during the huge price runups. Plus, who is to say what will happen in the spring given the uncertainty in Washington, D.C. and the continued threat of additional tariffs? In short, don’t reset prices based on this month’s news, because they could change next month.

Despite the turbulent year in the markets, next week is Thanksgiving and we are all still very blessed—challenges help us see these blessings a little more. Have a wonderful Thanksgiving with plenty of good food, joy, and happiness!

The RoMac Building Supply 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 RoMac Building Supply in Central Florida. Go to http://RoMacFL.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. .

 

 

October 2018 Whole House Commodity Index

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WHOLE HOUSE COMMODITY INDEX - October 2018

by Don Magruder, CEO of Ro-Mac Lumber & Supply, Inc.

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) declined 1.7 percent to $34,317.34, which wiped off most of the previous month’s gains fueled by Hurricane Florence, which struck the Carolinas. The most perplexing aspect of this month’s Index is the lack of impact to pricing that Hurricane Michael had on the commodity markets. Typically, a major Category 4 hurricane striking anywhere in Florida pushes sheathing prices upward. However, Hurricane Michael did not. In fact, prices dropped. Although Hurricane Michael entered one of the least populated parts of the state of Florida, its lack of impact is probably more about overall market demand than the devastation of the hurricane.

Evidence is mounting that the construction demand equation is eroding, and it could occur faster than many first believed. According to Dodge Data and Analytics, construction activity dropped by nine percent in August matching a nine percent drop in July—these are huge declines. There was a 19 percent decline in non-residential construction and a seven percent decline in residential construction. The huge decline in commercial building activity is very concerning.

While a hurricane can create panic buying, the result is that the activity lost because of the hurricane’s disruption can outweigh any business gained from damage. Declining commodity markets the same week a major hurricane hits the United States is not a good sign for market activity.

The following are the major price movers in the Index since last month:

  • Rebar was down 1.8 percent on supply and demand issues.
  • CDX pine dropped 9.4 percent and OSB sheathing gave back 27.3 percent. These drops are due to oversupply and weakening demand.
  • 2x4 pine was up 2.3 percent. 2x4 yellow pine is the only wood commodity item that increased in price. The treaters and truss plants are driving this demand.
  • 2x6 pine dropped 12.6 percent while wide-width 2x12 pine declined 9.8 percent.
  • 2x4 and 2x6 spruce were down 15.0 percent while 2x4- 92 5/8” studs retreated 9.7 percent.
  • Truss pricing was up 2.5 percent on increased pine and labor costs.
  • 4x4-8 treated posts gave back 6.1 percent.
  • Roofing shingles declined 2.6 percent on weaker demand.
  • Exterior doors were up almost 4.5 percent on increased costs driven by tariff concerns with pledges for more increases in the fourth quarter.
  • Vinyl soffit was up 8.2 percent on increased costs to manufacture.

While builders should be happy to see the commodity and building material pricing markets decline, they should be concerned with the overall health of the construction market. Here is my reality check on actual demand—in 39 years in this industry, I have never seen CDX plywood and OSB sheathing prices decline the same week a Category 4 hurricane threatened and struck anywhere in the United States. This could be an indication that housing and commercial construction demand is eroding faster and worse than most realize—I hope not.

Commercial and residential builders should be slow to accept conventional wisdom and believe false excuses for losing jobs or customers cancelling projects. If you start seeing a lot of this, and especially if labor becomes a little more plentiful, builders should start preparing for a turndown. It is too early to say, and this could be an aberration, but builders should be wary. Let’s hope that both pricing and markets start showing more signs of activity.

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. .

September 2018 Whole House Commodity Index

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WHOLE HOUSE COMMODITY INDEX - September 2018

by Don Magruder, CEO of Ro-Mac Lumber & Supply, Inc.

 

Nothing is better for sagging prices in the commodity market than a hurricane. Since last month, the markets got just what they wanted—another reason to raise prices. The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) jumped 1.9 percent to $34,893.90, ending a two month stretch of declines. Needless to say, Hurricane Florence is the main driver of the market and it is yet to be determined how much structural damage occurred. Based on wind velocity and flooding conditions, chances are Hurricane Florence will be a shingle and sheetrock storm.

The primary price movers in the Index since mid-August were the following:

  • Foundation wire mesh dropped 7.1 percent on slower demand and order pullbacks.
  • CDX pine jumped 31.5 percent while OSB sheathing only added 5.3 percent. It appears the CDX pine market may be ahead of itself and banking on another hurricane.
  • Pine dimensional was mixed as narrow width 2x4 pine was up 13.8 percent while wide width 2x6 pine dropped 7.8 percent and 2x12 declined 21.3 percent. A sign that truss plants were loading up on lumber.
  • Trusses were flat, easing off an unimpressive 0.5 percent.
  • Dimensional 2x4 spruce was up almost 2.0 percent while 2x6 spruce added 7.8 percent. Spruce studs could only manage a 1.0 percent increase.
  • A small sector, but emblematic of the continuing tariff issues with China, is fasteners. Fasteners and screws were up 20.0 to 31.3 percent. Tariff warnings are flashing on all Chinese goods in September.
  • Treated 4x4 posts were down 12.8 percent as treaters searched for buyers.
  • September marked another increase in shingles, with pricing edging up 2.6 to 4.8 percent. Before Hurricane Florence, many questioned whether this increase would stick—not so much now.
  • Drywall manufacturers gave back $5 per thousand (or about 2.0 percent) in hopes to spur demand.
  • Garage door openers are up 2.2 percent on tariff and trade issues from China.

If the hurricane season continues to heat up, expect pricing to go higher and find a floor in the third quarter. Although this year’s hurricane season has not matched the devastation, it only takes one hurricane to do so.

The housing demand equation continues to be unimpressive. Without support from more hurricanes, the markets may be set for a fourth quarter decline. Builders should remain diligent with a price adjustment clause in their contracts. Most importantly, builders must keep a close eye on items that could be affected by a huge increase in tariffs on Chinese goods. The tariff issue may be the biggest threat to building costs in the next few months, as most people have little idea how many products and manufacturers this will affect. Hang on! It could get a little choppy—not the weather, but the markets.

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. .

 

August 2018 Ro-Mac Whole House Commodity Index

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WHOLE HOUSE COMMODITY INDEX - August 2018

by Don Magruder, CEO of Ro-Mac Lumber & Supply, Inc.

In August, the Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) dropped in price for a second month in a row, and the declines this month were accelerated by a multiple of two. The wood commodity markets have been a bloodbath for mills and dealers as uncertainty, demand erosion, and overinflated pricing have finally merged.  As they typically do, the mills and manufacturers pushed the markets to a breaking point where builders and consumers found the pricing too high to build affordably.  The worry now for many is the housing market may have broken itself in a prequel to a recession. 

The Index dropped 4.2 percent to $34,244.16, which is just above February’s levels.  If the demand equation continues to erode, expect pricing in all sectors of building supplies to struggle, especially if the hurricane season remains quiet.  The June reports on housing were not good as starts, permits, new home sales, and existing sales all trended downward versus the prior year. 

The main price movers in the Index in the last 30 days were:

  • 5/8” rebar retreated 4.6 percent on imported loads sitting on the docks.
  • CDX plywood was down 24.0 percent while OSB gave back 20.3 percent.  Note— in the last week, the sheathing market steadied and actually added back $10-$15 per thousand.
  • Spruce studs were down 13.2 percent while 2x4 dimensional spruce slid 19.2 percent and 2x6 gave back 19.8 percent. 
  • Pine dimensional lumber was a little more mixed.  2x4 pine dropped 9.4 percent and 2x6 pine gave back a whopping 19.0 percent.  However, 2x12 pine added 9.9 percent.  Pricing was width-and-length specific in what determined the increase or decline. 
  • 4x4-8 treated posts declined 12.9 percent as most treated lumber followed the bright pine. 
  • Colonial base moulding added 3.4 percent on high overseas costs.
  • Garage doors added 4.4 percent on increased steel tariffs. 
  • Truss prices declined 4.9 percent on lower 2x4 pine pricing.

While builders are celebrating the decline in pricing, they should also be concerned.  Do these declines indicate that a far worse slowdown in housing is occurring?  If cracks in roofing, drywall and door/window pricing occur next month, builders should be concerned.

While last week’s increase in wood sheathing pricing may be encouraging to some, without an improvement in housing demand or a worsening hurricane season, those prices will probably not hold.  If the weather holds for the next four-to-five weeks and the uncertainty in tariffs and housing persist, expect pricing to drift sideways and a little lower.    

Builders should stay close with suppliers and be careful with long-term pricing.  There is a lot of volatility in the markets. 

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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