Whole House Commodity Index 10/15/15

whci graph OCT-15 web

Whole House Commodity Index - October 2015

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:

  1. Foundation mesh was down 1.9%, and traders were eager to make deals on blocks of rebar.
  2. CDX pine plywood dropped 6.7%, but it was offset by a 13.4% increase in OSB sheathing. This is probably a case of mix shift, as builders started flocking to lower cost OSB.
  3. Pine lumber in narrow widths was up 19.1% for 2x4s and 16.8% for 2x6s, while 2x12 wide with pine dropped 5.7%. In the past, narrow widths probably dropped too low and wide widths went up too much. Once again—I am not convinced this is a sustainable trend.
  4. Spruce dimension was a mixed bag with studs dropping 1.5% while dimension 2x4 added 2.3%, and remained flat on most other widths.

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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

Whole House Commodity Index 09/16/15

16sep15 wh graph web

Whole House Commodity Index - September 2015

By Don Magruder

 

I guess the biggest takeaway from the last 30 days is that not much has changed to add life to a sagging commodity market.  Commodities remain under pressure from lackluster demand, and it is becoming more evident that hurricane season offers little opportunity for increased sales.  In fact, roofing manufacturers have started offering special deals because the chance of a roof-ripping hurricane in 2015 is dwindling fast.

 The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for September declined 0.9% to $29,574.11, as most lumber items pushed lower and special prices surfaced for roofing products.  The biggest change in the Index came via the Florida Building Code.  Felt now has to be ASTM D226, and that added about $6 per roll in cost.

 Below are the other notable movers in the Index:

  1. Wire mesh dropped 3.3% and rebar was down 5.1% due to lower demand and the plunge in steel pricing.
  2. CDX pine added 5.2% with OSB sheathing matching it at 5.3%. These products were the only gainers in the Index, and it appears to just be a clawback in pricing from a bottom—no real trend.
  3. Narrow pine was down a little more than a percent while 2x6 dropped 5.0% and 2x12 eased off 10.0%.
  4. Spruce items dropped 5.0-8.0% depending on size and type.
  5. Shingle pricing dropped 3.0% as deals were to be made.
  6. It appears uncertainty is creeping back into the market as the third quarter ends.  Housing needs a quick start to the fourth quarter, or it could be a long, hard winter.  At this point, there appears to be little impetus for the markets to increase in price. Canfor announced a mill closing last week, and manufacturers throwing in the towel could lead to some stabilization of pricing.  Builders should keep a close eye on pricing as winter approaches.  Like cheap gas prices—don’t get used to them and don’t expect them to last.

 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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

Whole House Commodity Index 08/17/15

wh AUG-15 graph RLweb

Whole House Commodity Index - August 2015

By Don Magruder

In last month’s Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index), I cautioned about plunging commodity prices and lead times going out on vinyl windows.  Over the last 30 days, the downturn in the worldwide commodity markets has pushed building commodities lower.  The question for most in the industry remains, “Is this a blip or something much worse?” 

As for vinyl windows, the lead times have gotten much worse with one major Florida manufacturer going out ten weeks.  For the next several months, contractors must order windows earlier; and, more importantly, make sure there are not any order errors.

As of mid-August, the Index has plunged 1.0% to $29,836, as all wood commodities retreated because of lackluster demand.  This month’s Index is at its lowest point since April 2014, and down 1.6% since the first of the year.  While most builders celebrate lower pricing on building materials, my concern is that it is reflecting a downward trend in housing that cannot be ignored.  If commodities continue to go downward over the next 30 days, expect significant revisions to the 2015 housing forecast.

The following are the notable price movers in the Index in the last 30 days:

  1. CDX pine plywood dropped 1.8% while OSB sheathing retreated 2.6%.  Over the last week, manufacturers were trying to rally pricing in an effort to stop the downward spiral.  One week of increases does not represent a trend.

  2. Yellow pine 2x4 dropped 7.0% with 2x12 pine dropping 7.3%.  Oddly enough, 2x6 pine remained flat.

  3. 2x4 and 2x6 spruce retreated in price about 4.5% with studs giving back 9.1%.

  4. Roof trusses dropped 2.5% on lower wood pricing.

  5. Roofing shingles edged up 6.2%, but I am not real sure this is going to stick.  Many manufacturers have pulled back their increases.  This one could disappear in the next 30 days, especially if hurricane season remains quiet. 

  6. Wood commodities uniformly went down with only a couple of items staying flat.  If oil continues to retreat and housing starts falter, expect the deflationary pressures to hit other product lines as manufacturers try to keep revenues flowing. 

Hurricane season and the economy will determine what direction pricing will go over the next 30 days.  Because of a strong El Niño in the Pacific and tumult in the world economy, I see little impetus for a rising market.  This is the time of year where I caution builders to be mindful that pricing could quickly move up if we have a hurricane.   With low inventories in the supply chain, it could really be bad this year. 

Everyone should be careful on long-term quotes and include a price-escalation clause in their contracts.  If you would like to have a sample clause linked to this Index, please contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

Whole House Commodity Index 07/15/15

wh graph 15jul15

Whole House Commodity Index - July 2015

By Don Magruder

 

Since last month, the Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) increased 0.6 percent to $30,136.85, but in actuality if not for the new Florida Building Code the Index would have dropped 0.8 percent. Wow! That sounds like double-talk from a twice-convicted politician.

The Florida Building Code updated on July 1, 2015, and insulated aluminum windows in the Index had to be upgraded to vinyl windows to meet the new energy standard. The windows went up 19.2 percent and the new vinyl patio door is 31.2 percent more. Builders, make note that any of your projects that have not been permitted before July 1, 2015, will face the new window standard.

For the most part, pricing remained stable-to-down with a mixed bag on certain commodities. There continues to be very little impetus for a rising market, and it is almost like most items are in a holding pattern. Commodities worldwide are struggling to find a foothold and hold pricing, so I see little change in the near-term without a significant event either weather or demand driven.

The following are the notable movers in this month’s Index:

1. CDX pine is down 6.7 percent while OSB sheathing also drifted lower by 4.0 percent.
2. Narrow width pine is down 1.3 percent with wide width 2x12 up 6.7 percent.
3. Trusses dropped 2.8 percent on lower pine numbers.
4. Spruce studs were slightly up with dimensional spruce adding 2.3-3.4 percent depending on width.
5. As mentioned earlier, the increase in window pricing (due to changes in the Florida Building Code) are 19.2 percent on windows and 31.2 percent on patio doors.

I have two concerns this month. First, I am not sure there is enough available vinyl window production in the short-term to keep up with demand. I fully expect much longer lead times, higher prices, and service nightmares. Builders should order windows early and, most importantly, thoroughly verify their orders, because there will probably be very few quick ships for orders that are placed wrong.

My second concern is the direction of commodities in general. The worldwide economy is not good, and this turndown in commodities ultimately could draw down supply. Builders should understand that a rising commodity price is your best indicator of a thriving housing market. My suggestion is simple—this time of year stay on top of your supply chain. A Hurricane Andrew event anywhere in the United States could change market pricing quickly, as the supply chain is very thin right now. This is also not a good time to order products at the last minute. Good planning could be a big advantage to builders in the next 30-60 days.

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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

Ro-Mac Newsletter Signup