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:
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