The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for August 2013 increased 0.4% to $29,250.87, predominately on a rebound in dimensional lumber and CDX pine sheathing. After four months of decline in lumber pricing, a bottom and bounce were established, and this bolstered sagging prices in other base building materials. Manufacturers have been very slow to announce price reductions; however, lately, it appears “special truckload savings” and “show specials” are starting to be used to prop-up demand.
The Index has finished within 1.0% of its current value since May, and it demonstrates a sector which is struggling with balancing supply with an inconsistent demand. Since last August, the Index is 4.0% higher--despite the current flat trend.
Here are the notable movers from this month’s Index:
The bump in wood products kept the Index from dropping this month.
Spotty inconsistent demand; uncertainty in Washington, D.C.; and, market fear of the hurricane season seem to be the factors driving the market the most. Like an insomniac tossing in bed, this market is all over the place. This week, an increase in spruce futures fueled by a possible speculative large buy added more anxiety to the market.
The recent 1.0 point increase in mortgage interest rates appears to have an effect on the housing market. At this point, it is hard to imagine demand exceeding the first six months of the year. The hurricane season probably poses the biggest threat to pricing increases over the next 60 days, and it is anybody’s guess. For builders, the word is “cautious”. Contractors should be cautious quoting the current much lower prices for long-term projects.
The Ro-Mac Lumber 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
The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index for July increased 0.2% to $29,132.99, due primarily to the strength of popular lengths of dimension spruce and pine. In April, the Index hit its all-time, eight-year record high of $30,023.64. Since that point, it decreased 2.7%, but interestingly, the Index has priced out within a 2/10 range since May. This is not to say that lumber commodity pricing hasn’t dropped since May, but it is an indication that other material scopes have increased in price. A strengthened wood commodity market will have a greater impact on the Index in the future.
May’s Index cost is 5.5% more since the end of 2012 and it is 8.1% higher than last July. Something to consider is that in 2012 the cost of the Index increased 4.3% and I believe it is poised to follow that direction again. Here is my reasoning.
There were not many notable cost moves for this month’s Index, but here are the highlights.
Most items in the Index remained static, but expect higher pricing in shingles over the next month or so, as those manufacturers have announced August increases. Also, expect higher pricing for door and window scopes, due to higher labor and delivery costs.
The biggest problem on the horizon is a shortage of skilled labor. Good subcontractors are highly sought, and many of them are now in the situation of being able to selectively choose jobs instead of searching for work. This week alone, I have been told of multiple stories of subcontractors firing builders for low pay or poor working conditions. Also, there is a real battle for these subcontractors to retain their skilled people. Excellent masons, framers, plumbers and electricians are being paid more and recruited heavily.
For the past five years, builders have fully been in the driver’s seat when it comes to demanding lower prices from subcontractors and suppliers. During that period, many folks in the trades believed that some builders took advantage of a very difficult economic situation. It appears that dynamic is quickly changing. Look for many good subcontractors to fire builders because of hard feelings and low prices as the labor shortage continues to grow.
This is how I can best explain the labor shortage issue. For the last six years, there have been no jobs available in the construction industry and the industry has lost six years of hiring and training the next generation. During that period, there have been a bunch of white-haired skilled craftsman retire or die, which has resulted in a huge brain drain, especially since they had no one to teach. And, about half or more of the workers in our industry lost everything and now are working in other areas with no desire or will to come back. Toss in the fact that most technical schools and colleges have abandoned construction trade training because of the lack of jobs and you now have a huge problem that will take years to resolve.
Here are my two big pieces of advice to builders this month:
Don’t forget the country is less than a month a way from the teeth of hurricane season and a bad storm could quickly change the dynamics. This is the time builders need to protect themselves because the markets could turn very ugly in material cost and labor availability.
The Ro-Mac Lumber Whole House Commodity Index (Index) for June 2013 was $29,064.17, which is only $4 dollars below the previous month. The declines in wood product pricing were offset by a firming of prices in cement sidings and increased costs in truss fabrication labor. The declines have continued over the last month, but the larger drops from a month prior have ceased.
Demand and fuel costs continue to be the main drivers of the market and currently both have settled down from the mid-spring rally. There could be firming attempt at a bottom in the market as dealers are forced to replenish inventories. The wild card this summer as with any summer is weather--tropical weather in particular.
In the first week of June, Florida got hit by its first tropical storm of the year. Even though this storm was primarily a rainmaker, it lends credence to forecasters who are predicting an active year. Major weather events could quickly turn this market, especially if demand continues to improve.
The following are the notable movers in last month’s Index:
The big problem facing every company in the construction industry over the next few years is labor. For the last 6-7 years, the industry has not been adding new young people to its ranks because there were no jobs, while during the same period there have been a huge number of people who have left the industry in the course of regular retirements, deaths and disability. Throw in the fact that there have been a lot of good people who were put out of work in the construction industry and are now doing other things. Let’s face it, not many people are going to return to an industry that wiped them out. We have the makings of a real labor shortage and everyone will be jockeying for good, skilled labor.
The other big cost on labor is all of the new government regulations, which are about to hit, including Obamacare. Businesses in our industry with such a wide variation of salaries from top-to-bottom could be hit much harder than most. Some business people have told me they will either pay overtime or reduce staff, but many are refusing to go beyond the fifty-count in employees.
My forecast and recommendations are simple--be cautious. I don’t see a lot more downside in wood products. As the summer vacations end, expect more demand. Hurricane season concerns me because inventories are so low due to limited cash and market volatility. Any threat or God forbid a major storm in the hurricane zone will have immediate detrimental effects on pricing. Prices will go up quick and high with little warning.
Builders should not quote prices on projects using today’s pricing because there is a good chance that by September or October the cost of goods could be much higher. Price for 30 days; price with an escalation clause or price with pads; don’t put yourself out of business with today’s prices in October.
Look to the sky or Washington, D.C.; in both cases, it could get stormy.
Cracks in the commodity market in April have developed into what appears to be a short-term correction this month. As of mid-May, the Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) dipped 3.2% to $29,068.11, which is still 5.5% higher than December 2012, and the Index’s third highest price since its inception in 2005. The sharpest declines occurred during the end of last month and the first week of May with the week beginning the process of forming a bottom.
Don’t forget, this Index is based on wholesale pricing, and pricing on the contractor/retail level for most dealers is about 2-4 weeks behind as inventories are replenished.
Over the last several months, I have warned our readers about a softness entering the market because, in my view, pricing went up too fast too quick. This modest give-back is a result of mills and manufacturers not understanding the Mendoza line--where pricing will stop projects.
Currently, there are two competing stories in the commodity markets. The first story is this market adjustment will continue and prices will moderate; and the second one is, as you may have guessed, this market is temporary because supply remains tight.
Here is my three-cent opinion for the next two months. Pricing will fluctuate modestly up-and-down for the next couple of months until it finds a soft landing. There will be some items dropping in price, but others will firm because there is simply not enough in the supply chain. The housing market should continue to improve spurred on by huge increases in the stock market and a general improvement in the economy. Any modest increase in demand will put upward pressure on commodities; even now, suppliers’ inventories are woefully low.
I expect prices to firm later in the summer, as hurricane season and an increase in housing demand collide, and the harsh reality of a broken supply chain is exposed. Volatility will be the buzz word the last half of 2013. My advice to builders--the price you bid a project today may be totally different in two months. Utilize a price escalation clause, and in the case of hard bid situations, quote pricing established during the peak months of March and April. Strap in--this ride looks bumpy.
Here are the most notable price changes for mid-May.
On the horizon, there are increases announced in roofing, insulation and windows; however, it remains to be seen if these new prices will materialize. One serious issue for most builders is window availability. With a historical number of window manufacturing facilities closing their doors during the last five years, coupled with the lack of skilled labor, window products have been experiencing huge delays. In doors and windows, builders will have projects delayed if they do not place their orders well in advance of their needs. I see little hope in the window and door issue resolving itself in the next few months.
The worst thing a builder can do is quote May or June pricing for a project in October. It would not surprise me at all to see the market power back to March and April levels on some items, so be careful.
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