By Don Magruder
For June 2016, the Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) increased 0.7 percent to $31,209.58, which represents a four-month streak of increases.
While the increase over the last 30 days was modest and many costs seemed to have flattened out, there appears to be little evidence of a full retreat. Weakness in the pine and sheathing markets may be foretelling some trouble.
Recent rulings by the Florida Supreme Court are starting to have major effects on all areas of construction and supply. By a decision of 5 to 2, the Florida Supreme Court in Castellanos vs. Next Door Company ruled against the limits on attorneys’ fees in workers’ compensation cases. Plus the court ruled that the 104 week limit on disability benefits for injured employees was unconstitutional and they raised it to 260 weeks.
The results of these rulings is that workers’ compensation insurance in the state of Florida is about to skyrocket in price, flinging the door wide open for abuse. The National Council on Compensation Insurance (NCCI) has recommended that all workers’ compensation rates go up 17.1% on August 1, 2016. This huge increase will have to be passed along at all levels of supply, installation, and manufacturing. Worse yet, some scopes of work could get harder as abuse of the insurance occurs and Experience Modification Rates (EMR) change. It will take new legislation by the Florida House and Senate plus the Governor’s signature to stop this, and there is little will to do anything before the election. I am already seeing price increases as companies are bidding projects for later in the summer.
For the month, the following are the notable price movers in the Index:
Builders are in a precarious situation in pricing because the workers’ compensation increases are going to be real and Florida is heading into the heart of hurricane season. Labor shortages continue to plague the supply chain. It just seems that a lot could intersect in the next month or so. My recommendation is that all quotes have a price escalation clause tied to them and builders should be very careful about quoting projects today for September and October. The price of business could go higher—profitable projects now could be in the redin just a few months.
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.