by Don Magruder, CEO of Ro-Mac Lumber & Supply, Inc.
The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index for October increased 1.9 percent to $33,157.65 primarily on the strength of the wood commodity markets bolstered by four United States landfalling hurricanes in the last two months. As of mid-October, the commodity markets are beginning to settle as most traders realize that hurricane season is quickly coming to an end, the re-building will be much slower, and the larger housing numbers are what will really drive the market—not the hurricanes.
Events like hurricanes create volatility and market spikes. However, it takes large fundamental movements in the markets to create trends. The large fundamental numbers in the housing market and economy, which dwarf the spike of three hurricanes, are not pointing to a market that can support the current commodity pricing levels. In fact, I think an argument can be made that these spikes in pricing will probably contribute to an overall slowing in the market because it exacerbates the affordability issue.
Consider these housing and economic numbers:
Plus what is missed by many is that skilled labor constraints, more regulations, and the loss of time due to storm cleanup is creating slower home construction times, which will naturally slow down demand for products. With the holidays quickly approaching, there is little doubt that pricing in many of these commodities will retreat quickly as the reality of the market replaces the anxiety from the hurricanes.
Here are the notable price movers in the Index for October:
A big factor in the markets, which is helping to push up pricing, has been trucking. With so many natural disasters, trucks are difficult to find because many are hauling basic necessities, survival supplies, or trash. Hurricane Nate, which hit the Mississippi Gulf Coast a couple of weeks ago, probably slowed the market abatement—but it is coming. With little damage reported, many suppliers will focus on selling inventories on the ground.
My forecast/advice to builders is that pricing will moderate further as we get into November. However, spot shortages on specialty items will remain. Special order items like windows and doors are a problem, and builders should expect longer lead times. Builders should be more worried about the trade policies affecting pricing in the next quarter than past hurricanes. If the large fundamental numbers do not start showing more life, then expect pricing to really moderate by the first quarter of 2018. Watch the trends in housing and ignore the emotions from these hurricanes.
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