By Don Magruder
Since mid-September, the Ro-Mac Lumber & Supply, Inc, Whole House Commodity Index (Index) dropped 0.3% to $29,483, which represents its lowest price since December 2013. Deflation in commodities across the world is bearing down on prices and housing. This deflation coupled with uncertainty in the stock market appears to be creating a negative climate for housing in the final quarter. A limited number of commodity items rebounded over the last 30 days, but most believe it is a market gyration and not a developing trend.
On Monday, October 13, 2015, the Softwood Lumber Agreement between the United States and Canada expired. Some analysts believe there could be a wall of lower priced lumber heading for the United States. The agreement is very contentious and was put in place because American lumber producers contended that Canadian lumber producers were subsidized because of the Canadian government’s ownership of most timberlands.
Initially, no wall of lumber was seen heading to the states. However, as time goes forward with no agreement more Canadian lumber could flood the market, driving down prices. With that in mind, most gains in wood commodity prices over the last 30 days could easily evaporate given the agreement’s expiration and the approach of winter.
The following are the notable price movers for the month:
Most other building materials did nothing as many manufacturers were hoping the deflationary pressures being felt in commodities would not infiltrate their markets.
My advice to builders is be careful on pricing. Long-term pricing on dips could be dangerous—my main worry is not pricing but rather the markets. Everyone should understand this collapse in commodities usually foretells a weakening economy, and that could be a bigger challenge than volatility in the commodity markets. Nailing down business for the fourth quarter of 2015 and the first quarter of 2016 should be the focus.
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