July 2017 Whole House Commodity Index

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Whole House Commodity Index 
July 2017  -  By Don Magruder

Over the last 30 days, the Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) increased 0.9 percent to $32,584.27, which reverses two months of declines.  For the year, the Index is up 4.0 percent; since July 2016, the Index has increased 4.2%.  This may suggest that without a pickup in housing demand, the second half of the year may be more challenging for those who wish to raise prices.

A large part of this month’s increase is being pushed by the new trade duties imposed by the United States government in regards to the U.S.A—Canada Softwood Lumber Agreement.  Rumors of an agreement to impose reductions in Canadian lumber imports as well as a flare-up in wildfires has added more uncertainty to the markets.  However, pricing still remains below the record level in May.  Pricing and the new administration’s stances on lumber are already baked into the pricing, but it needs the heat of a strong housing market, which at many levels remains lukewarm.

The following items had notable wholesale price changes over the last 30 days:

  • PVC trim dropped 1.1 percent on special deals while vinyl soffit added 3.2 percent.
  • Pine pricing was down—2x4 was off 9.5 percent, 2x6 was down 4.7 percent, and 2x12 gave back 8.0 percent.
  • 4x4 treated posts were up 3.5 percent.
  • Truss prices retreated 0.6 percent on lower pine pricing.
  • Spruce was up across the board on increased duties—2x4 studs added 8.3 percent, 2x4 dimensional SPF was up 8.1 percent, while 2x6 SPF increased a whopping 15.2 percent.
  • CDX pine plywood added 3.1 percent while OSB sheathing jumped 7.7 percent.
  • Threats of new tariffs on foundation rebar added 7.1 percent on 5/8”x 20’ grade 40.

A couple of things could affect pricing quickly this summer.  Hurricane season always proves to be a problem, especially if a monster like Hurricane Andrew or Hurricane Katrina were to form.  The other thing is tariffs, specifically a huge tariff on steel.  Many analysts believe that the Trump administration will make a decision this week on steel tariffs.  A rumored 20 percent tariff on steel would have a detrimental impact on housing as well as potentially being the tripwire to a trade war. 

The big problem in housing is demand and the biggest drag on demand is affordability.  Higher pricing as a result of tariffs and trade policy will only exacerbate a serious problem.  Manufacturers, mills, and home builders will be looking closely at the new policies coming out of Washington, D.C.

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. .

June 2017 Whole House Commodity Index

 

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Whole House Commodity Index 
May 2017  -  By Don Magruder

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for June dropped 1.2 percent to $32,301 as lumber and panel products retreated from spring highs. There was no appetite to increase prices in other building supply sectors, which hints that the markets are cooling. Unlike Wall Street, the commodity markets are suggesting a different economic future. It appears caution as well as uncertainty are creeping into the housing market.

Recent housing numbers suggest the commodity markets are telling a story few people want to acknowledge. Consider the following housing numbers from April:

  • Florida’s total overall permits for the year in April were up 4.0 percent. However, Florida should be one of the strongest markets in the country if you consider population growth. By no means do these numbers suggest a housing boom. Plus look at how the numbers stack up—single family home permits were up 14.4 percent to 25,833 while multi-family permits dropped 13.1 percent to 11,974.
  • National new home sales were down 11.4 percent in April as compared to March, with inventories stretching out to 5.7 months. Interestingly, the average sale price for a new home was $368,300.
  • National housing permits in April were down 2.5 percent from March while there was an increase of 5.7 percent when compared to 2016.
  • April housing starts dropped 2.6 percent from March and were only up a meager 0.7 percent from 2016.

Here is my view of the numbers as they relate to housing demand:

  • I still contend the “canary in the coal mine” is and always will be commodity pricing. If housing demand is robust, given the market’s ability to control supply, pricing should be firmer heading into the building season. The declines in lumber pricing are concerning.
  • The drop in multi-family numbers may suggest that inflation in land, labor, and material costs is pressuring ROI on multi-family projects. Considering these projects are planned well in advance, the increases from the last few years could be attributed to lower costs that are not available today.
  • The buildable cheap leftover lots from the housing boom in Florida have probably been depleted. New developments are a slow process and the dirt prices as well as the costs to develop land are bringing on real sticker shock. That could be the reason why single-family building is favoring the custom builder on scattered lots.
  • The average selling price being $368,300 for a new home is too high for most first-time homebuyers and the ability to construct a lower priced home, especially in Florida, is almost impossible. The market could be nearing the cross of demand and affordability.
  • Finally, the chaos and inactivity on pro-business reforms may be wearing on the enthusiasm of buyers and builders who are seeing uncertainty seep back into the markets.

In the May Index, there was a slight drop in cost and I noted my skepticism as to whether the market had the legs to rebound. I am growing more concerned that we are having another repeat of prior years where housing didn’t continue its momentum from spring. Despite the threat of additional lumber and steel tariffs as well as increased labor costs, the calls for increased pricing are not being heard.

I hope this is late spring, early summer doldrums for the housing market. Builders and suppliers should be a little wary. There’s no doubt that we would be in a housing boom if the market could produce lower cost starter homes. However, I am not sure that is achievable. To me, this shapes up to be a surging custom home building market, with those homeowners who have the financial means.

The following items had notable wholesale price changes over the last 30 days:

  1. In sheathings, OSB sheathing dropped 12.4 percent while CDX pine dropped 6.8 percent.
  2. Pine dimensional lumber was down 6.2 to 9.9 percent, with wider-widths leading the way.
  3. Truss prices dropped almost 1.0 percent on lower pine pricing.
  4. Dimensional spruce was down almost 9 percent while spruce studs gave back 5.5 percent.
  5. Treated 2x4-16 was down 5.8 percent and 4x4 posts retreated 4.8 percent.
  6. All other pricing was stable.

Just a note—the moulding companies are forecasting some fairly significant price increases in July as increased overseas pricing is coming to fruition. This has more to do with the country’s trade policies than it does demand.

One caveat is that we are entering hurricane season. The forecast is for more threats and a hurricane such as Matthew could throw the markets into turmoil. Builders should monitor both the weather and demand. I expect mills and manufacturers will hold onto pricing if they can, but they must see better housing numbers. Builders should remain cautious in their bidding and realize that numbers may have to be sharper.

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. .

May 2017 Whole House Commodity Index

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Whole House Commodity Index 
May 2017  -  By Don Magruder

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for May 2017 slightly retreated from April as builders and suppliers digested the huge year-over-year increase in lumber and sheathings.  The declines in commodities could be an indicator of weakening demand as cost erodes the affordability of new projects.  The next few months will test this theory as additional lumber tariffs are in the offering at the end of June.  At some point, will builders move from Western Canadian spruce to pine as so many pine producers had hoped for—we will see.

Over the last 30 days, the Index dropped 0.3 percent to $32,796.99, with most non-commodity items remaining steady and looking for some sort of market direction.
The following items were the notable price movers in this month’s Index:

  1. CDX pine plywood dropped 1.0 percent while OSB sheathings added a small 0.5 percent gain.
  2. 2x4 pine declined 3.1 percent while 2x6 and 2x12 pine gave back on average 6.0 percent.
  3. 2x4 dimensional spruce was down 3.1 percent while 2x6 spruce gave back 5.1 percent.
  4. Oddly, 2x4-92 5/8 spruce studs managed to add 1.0 percent.
  5. Decreases in pine pricing resulted in a minor 0.8 percent decline in truss pricing.
  6. Metal foundation rebar added 3.5 on higher import duties and a belief most of the cheap bar on the ground is depleted.
  7. Colonial casing was up 4.3 percent on increased pricing from exports.

At this point, the concern for additional tariffs should be spooking the markets.  I have yet to see any of this.  Maybe the extra costs are baked in or maybe builders and suppliers have become ambivalent to the continuous price increases.  These would be better reasons than softening housing demand.
The politicians in Washington, D.C. need to tap down the bickering and chaos somewhat or that along with inflationary pricing could begin to erode housing demand.  Affordability and political chaos at this point seem to be the two biggest threats to the housing market. 

Let’s see if the spring pricing increases have the legs to run into summer.  At this point, I am skeptical.

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. .

April 2017 Whole House Commodity Index

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Whole House Commodity Index 
April 2017  -  By Don Magruder

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:

  1. Wire mesh dropped 1.9 percent while rolled 6 mil foundation plastic jumped 4.5 percent.
  2. Boxed felt nails were up 1.7 percent on increased steel pricing.
  3. Yellow pine lumber traded in a very narrow range with 2x4-16 up 1.0 percent, 2x6-16 up 3.7 percent, and 2x12-16 down 1.7 percent.  Pine usually follows the spruce market if demand is the sales driver.
  4. 2x4-92 5/8” #2 spruce studs were up 14.7 percent while dimensional 2x4-16 #2 spruce added 14.6 percent.  These are heavy increases for one month.
  5. 2x6-16 #2 spruce added 12.0 percent and most wider-width spruces had similar increases.
  6. 4x4-8 treated posts added 2.8 percent on higher mill pricing.
  7. Cement siding added 4.0 percent on increased pricing from the manufacturer.
  8. Trusses added 0.5 percent on increased pine pricing for higher quality grades.

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

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