The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) continued to trend in a very narrow pricing range throughout early December, as it dropped 0.2 percent to $30,314. Spotty demand fueled by early winter weather, coupled with declining fuel prices, left mills and manufacturers searching for business. The Index has priced out in a narrow range since spring, despite some volatility in the market, resulting in movers and decliners offsetting one another.
Confidence in steady growth and uncertainty in housing demand still remain huge components in the market. The huge decline in oil prices seems to be ushering a deflationary tone into the commodity market, which may tap down prices through the first quarter of 2015. Unless there are significant changes in housing lending policies, there seems to be no magic bullet for housing starts in January—just more of the same.
The decline in the Index was prompted by decreases in wood commodity prices. CDX Pine plywood dropped 6.2 percent this month while OSB sheathing gave back 7.7 percent. Pine dimensional was flat-to-down 4.3 percent, depending on size, while single-digit drops in spruce studs were offset by single-digit increases in spruce dimensional. 4x4 treated posts added 4.8 percent, as manufacturers searched for yellow pine stock for spring production.
Foundation metal products was the only group to move in unison with rebar adding 1.0 percent while foundation mesh surged 4.1 percent. The only other significant mover was a 6.0 percent increase in house wrap, which has been on a continuous sale for the last two years. While drywall and other building material sectors, such as insulation board, doors, and windows are indicating increases after the first of the year, the ability to make new higher prices stick could be in question.
Here are my concerns with the market and next year. I am concerned about the deflation in oil prices and the overall effect it has on commodity wood pricing. If there is no significant increase in demand, and mills have lower fuel costs, expect heavy discounting. While that is good for builders in the short-term, it is bad for a shaky supply channel in the long-term.
I am concerned 2015 will have a slow start, keeping the year from reaching expectations. While activity is okay in the Central Florida marketplace, it is not as brisk as it should be if 2015 is going to live up to its top billing as a breakout year. Professionals in real estate as well as lending and banking seem to have the same take on business—it is better than the depths of the Great Recession, and it has improved, but it is far from a good normal.
If 2015 is going to start off strong, lending institutions should be flooded with new mortgage applications; instead, most lenders are saying the number of new applications is just steady. It is hard to imagine steady producing a significantly improved number in the first quarter.
For the next 30 days, there will be little momentum in the marketplace to increase prices. Builders should re-bid projects that were bid months ago, as commodity prices have settled. When bidding future projects, builders should be mindful of today’s prices, which may be too low if spring building were to crank up.
I wish everyone a Merry Christmas and Happy New Year!
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