by Don Magruder, CEO of Ro-Mac Lumber & Supply, Inc.
The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for May 2018 regained its upward momentum by increasing 1.3 percent to $35,580.86—a record high. The price flattening that occurred in the April Index appears to have been only a moment of consolidation as the price inflators of the market seem to be in charge. Tariffs on steel, aluminum, and Canadian lumber; shortages in labor and trucking; and market uncertainty and turmoil are creating an inflation-rich environment. How much more in cost increases can this housing market endure before it goes into revolt?
The primary price movers in this month’s Index were:
Many of this month’s increases are being sent with another caveat—longer lead times and delays. Improving weather in the northern states as well as a shortage of truckers brought on by agricultural season are creating shipping nightmares. Higher trucking costs are being tacked onto higher material costs with longer lead times.
Inventory and supply in the chain are facing a silent foe that many hesitate to discuss—cash flow. Higher commodity costs and longer lead times are busting the cash flow of many companies in the supply business. Plus, builders who can ill-afford to pay more for products on projects that have already been bid are taking longer to pay for materials. This burning through cash as well as money lost on projects due to inflation could start the undoing for many.
Over the next couple of months, inflation in pricing and supply will be in charge—expect to pay more and wait longer. Afterwards, I am not sure the housing demand will begin to tap out to higher costs. The affordability equation is getting very close to the demand quotient and I am not convinced these prices can be sustained. A bad hurricane season will give it fuel, so things are very murky.
Builders should have a price escalation clause in their contracts and be mindful that a long-term relationship with suppliers is very important. Correctly bidding and not being suckered into low prices will be the difference in making money—be careful.
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