Whole House Commodity Index 04-16-2014

Copy-of-Graph-for-New-Home-Construction-Price-Analysis-May-2014

 

If something doesn’t happen soon, the spring housing rally won’t begin until summer.  Professionals throughout the construction industry are growing concerned, as better weather provides no more excuses for sagging sales.   The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) decreased 0.9% to $29,738, as downward pressure in all wood commodities offset the modest increases in ancillary building products.

Supply professionals are lamenting the higher fuel costs, labor issues, and shortages of trucks and railcars.  Despite these issues, wood commodity prices have declined in the first two weeks in April.  Is this an aberration or a tell-tale sign of future housing demand?  This uncertainty is leaving many in the marketplace sitting on their hands until actual buyers show up.

The following are the notable price variations in this month’s Index: 

1. Felt increased 2.3% on higher fuel costs.
2. 2x4 narrow yellow pine dropped 4.5% while 2x6 gave up 11%. 2x12 pine was flat-to-down.
3. Sheathing retreated as CDX pine declined 4.8% and OSB gave back 8.2%.
4. Dimensional spruce decreased 6% plus, while spruce studs gave back 7.7%.
5. Truss prices dropped 1% on declines in lumber.
6. Interior doors were up about 0.5%.
7. Garage doors increased 3.1%.

What this market needs is home sales.  If there is a late spring rally in home sales, these market lows will quickly reverse course, and builders who bid projects for later in the summer at these prices could be stuck with a negative profit.  The market is certainly poised for more upside risk than downside risk. The next month will probably be the best barometer for the housing market for the year.  If buyers fail to step into the market, it could end up being a long, hot summer for many builders and suppliers.  Builders should protect themselves with an escalation clause in their contract. If you would like a sample price escalation clause tied to this Index, please contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it.

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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