The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for April 2017 hit an all-time high as fears of the countervailing duty ramifications fallout from the Canada-United States Softwood Lumber Agreement decisions spook markets. Importers of Canadian spruce fear that heavy duties could be in the near-term, with claw-backs for lumber shipped months ago. Some mills are off the market while others are adding premiums on orders shipped to the United States.
Based on other factors in the market, it appears demand in housing is not totally fueling these increases. As with steel earlier in the year, fear of a trade policy is driving the price and discussion.
Since last month, the Index increased 1.6 percent to $32,796.99, and 5.0 percent since the first of the year. As compared to April 2016, the Index is up 8.8 percent, which can be devastating to builders who are hesitant to increase home pricing. Keep in mind, this Index represents the structural components to build a home and has nothing to do with labor increases in the field. Many would argue that labor has increased more than 8.8 percent and this does not take into account the general increases in fixed overhead for most companies. The point is simple—builders must increase the price of their homes to stay viable.
The following items were the notable price movers in this month’s Index:
Roofing, drywall, insulation, windows, and doors as well as most other building material items were flat. This indicates to me that demand remains unimpressive.
In last month’s report, I cautioned that a quick turnaround in the markets could occur and I suggested that builders incorporate a Price Adjustment Clause in their construction contracts. Included in the report was a copy of the clause we created that ties back to our Index. After the last few weeks of increases, incorporating this clause in contracts appears to be a good move.
Once the Canada-United States Softwood Lumber Agreement is resolved there will be a few weeks of fallout, but ultimately demand will drive this pricing boat again. Markets go up and down, but if housing does not kickoff strong quickly, I expect lumber pricing to ease. It is very prudent for builders, especially custom builders, to have a Price Adjustment Clause in their contracts because the markets are just too unpredictable this 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