Whole House Commodity Index 05-15-2014

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

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Has the building season finally started or does this month’s Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) represent a blip on the chart?  The Index for May increased to $30,023.56 (or 2%) from April with many wood commodities pushing up in price. This month is a record high for the Index topping the April 2013 number of $30,023.64.

The results of this month’s Index could be deceiving because previous increases this year in other commodities due to increased fuel costs were hidden because of the very soft commodity market.  Currently, the plywood market is about 20% below the price level of last year while dimensional lumber is about 2% below.

It remains to be seen if this increase in the commodity lumber and plywood markets will have the legs for a full-fledged run as housing in many sectors of the country remains unpredictable. Three aspects affecting pricing, which cannot be ignored, are the increasing cost of fuel, lack of trucks, and new Department of Transportation driver medical qualifications going into effect on May 24, 2014.  If the housing market were at historical or predicted levels, the price of this Index would be much higher.    

The following is the list of the most notable price movers over the last 30 days.

1. Foundation wire mesh was down 2.5% with rebar retreating 1%.

2. CDX plywood added 11.1% while OSB sheathing surged 17.8%.

3. Yellow pine was up 12.9% with other pines were at par, except for wider widths, which added 2.3%.

4. Spruce studs were up 6.8% while 2x4 spruce increased 1.4%; 2x6 barely moved up.

5. Announced spring price increases in shingles pushed pricing up 6.6%; however, I don’t know if there is enough glue in the market to make it stick.  Some special "show” buys are already emerging.

6. Engineered beams got back 3.8%.

Fuel, trucking, and housing demand will determine if this market holds onto these gains.  At this point, there appears to be just minimal momentum.

One soap box I have been preaching on in regards to housing is the availability of credit for potential homebuyers.  New mortgage regulations have pushed most middle-to-lower income people out of the market. This is the reason why 45% of the total homes are sold on a cash basis and most homes purchased are mid-sized, not starter homes. 

The Obama administration announced that it has started reviewing the regulations on mortgage lending and the role of Fannie and Freddie.  It appears there has been an epiphany that there is no private solution to Fannie and Freddie, and that the country’s economic woes can be tied to a dysfunctional and over-regulated government housing bureaucracy.  It will be months before new rules are written, but maybe if some certainty and clarity can be achieved, housing could end its six-year slump.  Expect little action in the short-term, which could bolster these markets; however, at least someone has finally started to recognize the obvious.    

Builders, “uncertainty” is still the word.  The market will probably drift up-and-down until there is confidence this market is truly on the mend or some major natural disaster occurs.  Be careful in bidding because a price that is bid during a market low could pinch a few months later on the upside.

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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