by Don Magruder, CEO of RoMac Building Supply
The RoMac Building Supply Whole House Commodity Index (Index) for December declined 0.6 percent to $33,300.00, which continues the downward pressure that started a couple of months ago. Lowering prices in wood commodities primarily drove the decrease as mills and manufacturers searched for buyers through the rain and cool temperatures.
It seems like excuses using the weather report are being used more often than blaming the real culprit—falling housing demand. The latest report by the United States Census Bureau for October, when compared to the previous year, shows new home sales declined 12.0 percent and housing starts dropped 2.9 percent. The continued erosion of the housing demand equation is the big issue for the last quarter of 2018.
2018 has been a brutal spin cycle for most builders, subcontractors, project owners, and dealers if you consider this one fact—the Index only increased 0.5 percent from January to December 2018. During the year, huge increases in wood commodities coupled with significant inflation in most other building material lines hit a crescendo in June. At that time, tariff threats, labor shortages, fuel costs, and shortages in truck drivers converged in the markets and created a panic in pricing and supply.
Since June, the Index dropped 8.6 percent with wood commodities plunging while other material costs continued to increase. This pricing mask will be unveiled if there is a significant increase in wood commodity pricing in the spring. To make this point, consider that 7/16” OSB dropped 58.5 percent; 5x8” CDX is down 31.4 percent; and spruce studs are down 27.8 percent. This is why builders should be wary about quoting today’s pricing for jobs later in the spring—there is underlying inflation built in the house that will be exposed if the wood markets go up.
Here are the notable price movers in the Index over the last 30 days:
Window and door manufacturers have announced price increases after the first of the year, and others are trying to line up for more. If home sales and housing start numbers continue to sag, I expect capitulation in other areas of construction materials. Prospects of manufacturing curtailments and shutdowns are growing every day.
No one said being in the construction industry was easy, and for 2019 indications are there could be other challenges. Gathering and understanding the most information to make informed decisions is your best defense, and I hope this report helps.
I hope and pray everyone has a Merry Christmas and Prosperous New Year!
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 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