The Ro-Mac Lumber Whole House Commodity Index (Index) for June 2013 was $29,064.17, which is only $4 dollars below the previous month. The declines in wood product pricing were offset by a firming of prices in cement sidings and increased costs in truss fabrication labor. The declines have continued over the last month, but the larger drops from a month prior have ceased.
Demand and fuel costs continue to be the main drivers of the market and currently both have settled down from the mid-spring rally. There could be firming attempt at a bottom in the market as dealers are forced to replenish inventories. The wild card this summer as with any summer is weather--tropical weather in particular.
In the first week of June, Florida got hit by its first tropical storm of the year. Even though this storm was primarily a rainmaker, it lends credence to forecasters who are predicting an active year. Major weather events could quickly turn this market, especially if demand continues to improve.
The following are the notable movers in last month’s Index:
The big problem facing every company in the construction industry over the next few years is labor. For the last 6-7 years, the industry has not been adding new young people to its ranks because there were no jobs, while during the same period there have been a huge number of people who have left the industry in the course of regular retirements, deaths and disability. Throw in the fact that there have been a lot of good people who were put out of work in the construction industry and are now doing other things. Let’s face it, not many people are going to return to an industry that wiped them out. We have the makings of a real labor shortage and everyone will be jockeying for good, skilled labor.
The other big cost on labor is all of the new government regulations, which are about to hit, including Obamacare. Businesses in our industry with such a wide variation of salaries from top-to-bottom could be hit much harder than most. Some business people have told me they will either pay overtime or reduce staff, but many are refusing to go beyond the fifty-count in employees.
My forecast and recommendations are simple--be cautious. I don’t see a lot more downside in wood products. As the summer vacations end, expect more demand. Hurricane season concerns me because inventories are so low due to limited cash and market volatility. Any threat or God forbid a major storm in the hurricane zone will have immediate detrimental effects on pricing. Prices will go up quick and high with little warning.
Builders should not quote prices on projects using today’s pricing because there is a good chance that by September or October the cost of goods could be much higher. Price for 30 days; price with an escalation clause or price with pads; don’t put yourself out of business with today’s prices in October.
Look to the sky or Washington, D.C.; in both cases, it could get stormy.
The Ro-Mac Lumber 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