Whole House Commodity Index 7-15-13

Whole House Commodity July graph

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.

  • Inventories on the ground are woefully low and the recent activity in the lumber and plywood market indicates that purchasing managers understand that costs are probably at the bottom of the cycle. Concerns about a minimal drag in housing due to higher interest rates will be offset by a steady demand in most areas.
  • Trucking is a problem for many areas and the last two weeks of fuel cost increases will not make that get any better.  Hand-to-mouth inventories can create real hunger in the supply channel if there is an inability to have the product delivered to dealers.
  • Rain in the south has been unmerciful for nearly a month and log decks will dwindle. Historically, long-term rain patterns affect supply, especially in wider-widths. Stronger truss production in Florida will put added pressure on southern pine markets over the next few months.
  • Many dealers have a growing weariness about supply. While there may not be shortages in various supply scopes in the building material supply chain, there are definitely shipping delays and much longer lead times. Impatient builders may be changing the minds of reluctant suppliers in regard to bolstering inventory levels. Understand, whether by trucking shortages, increased housing demand, or general inventory growth, there appears to be a move away from hand-to-mouth inventories.

There were not many notable cost moves for this month’s Index, but here are the highlights.

  1. CDX plywood was down 6.2% and OSB sheathing dropped 16.5%. However, the last two weeks have firmed up in both lines and this should entice buyers into the market, which could drive pricing higher.
  2. 2x4 #2 yellow pine was up 2.8% while 2x6 pine dropped 2.7% and wider width 2x12 pine settling down at 7.9%.
  3. Spruce studs increased by double digits on higher demand and 2x4 dimensional spruce gained 4.7%. Wider 2x6 spruce gave back 2.9%.
  4. Interior and exterior doors decreased less than 1% on more competitive commodity moulding pricing.
  5. Truss prices were up 2.9% on high narrow width pine and increased costs in labor.

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:

  • If you have great subcontractors working for you, be prepared to defend your position. If you are a builder who has a reputation of brow-beating subcontractors down on price and then nickel and diming everything to setup a back charge, good luck finding good people. If you have a great subcontractor base, you better love and care for them because they will have options and the cost of business is going up. Hesitating to approve a subcontractor increase will send that subcontractor to your competitor.
  • A lot of issues are breaking for higher prices, so I expect pricing to go up in the third quarter. It appears the commodity markets have cemented a bottom and higher fuel cost typically leads to a pop-up in pricing. Builders should update quotes and have price escalation clauses in their contracts. If you would like a sample of a free price escalation clause for your contract based on this Index, contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it. . Please consult with your attorney before adding anything to your contracts.

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 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 6-17-13

 Whole House Graph June

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:

  1. CDX plywood was down 10.9% while OSB surrendered 15.3%.
  2. #2 spruce narrow widths dropped 9.0% while 2x6 spruce gave back 14.7%.
  3. Pine dimensional lumber slid with narrow widths in the low-to-mid single digits while wider width pines dropped 13.4%.
  4. Truss prices jumped 6.8% on higher demand and increased labor costs.
  5. Cement sidings jumped 87 cents on increased demand and tighter supply.

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.

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

Whole House Commodity Index 5-15-13

Whole House Commodity May 2013

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.

  1. Foundation wire mesh dropped 3.3% and steel rebar dropped 1.7% on lower demand.
  2. CDX pine plywood gave back 7.9% while OSB retreated 19.8%.
  3. Roofing remained firm, with the exception of felt which dropped 1.8%.
  4. Narrow width pine dropped 9.7%-11.7% depending on width, while wider width pine erased 16.8%.
  5. Dimension spruce dipped on average 11.5% while studs retreated almost 16.5%.
  6. Truss pricing was off 4.0% on lower pine pricing from late April.
  7. Single digit increases in door unit pricing was prevalent on cost increases in jambs and mouldings.
  8. Engineered wood edged up by the single digits on increased demand.

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.

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

Whole House Commodity 4/15/13

  April Whole House Commodity

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) continued a four-month string of price increases in April despite some cracks developing in some lumber dimensions. In mid-April 2013 the Index priced out at $30,023.64, which is a record high and up 2.6% from the prior month.

To put April’s price into context here are four of the most notable facts:

  • The Index has increased 8.9% since the end of 2012 with pricing going up each month in 2013.
  • From last April, the Index has increased 10.7%, which translates into a significant rate of inflation to build a home.
  • Prior to this year, the record high was October 2005, a month after Hurricane Katrina had decimated New Orleans and in the midst of the housing boom. This month’s Index is 4.6% higher than October 2005.
  • Since 2007, prices in the Index have always increased between the months of April and May. This does not bode well for a drop in price next month.

The market continues to have major influential factors, such as hail storms in the south, stronger housing starts, and limited supply as a result of unconfident manufacturers who are unwilling to take a chance in the current political environment.

For the most part, there was not a massive price increase in all areas. Some prices dropped; however, on a few of the big use items the prices soared, which is why the Index increased so much this month. Listed below are some of the details:

  1. Foundation wire mesh increased 2.2% while rebar (for the most part) remained flat.
  2. CDX pine plywood soared 12.5% on limited available production. The full effect of the closure of the Georgia-Pacific Hawthorne, Florida mill is really being felt right now. We have been told by experts in the market that the mill will not reopen due to excessive government requirements. No easy solutions to the CDX supply issue are evident at this time.
  3. Oddly, OSB sheathing dropped 2.4% as production increased and word of new production being added soothed the markets.
  4. The stud market has been on fire.       2x4-92 5/8 SPF studs increased 11.8% on high demand; however, dimensional 2x4 spruce dropped 3.7% while 2x6 spruce gave up 1.4%. It is odd that studs did not follow the trend of the entire species.
  5. Pine dimensional lumber was down with 2x4 dropping 4.8%, 2x6 giving up 4.1%, and wide width pines trying to hold onto gains only slightly down 1.4%.
  6. Truss prices increased 6.5% as truss manufacturing facilities have finally worked through most of their lower cost pine inventory.
  7. 4x4-8 treated posts gave up 2.9% as mills searched for buyers.
  8. The first round of shingle price increases took place in the last 30 days and it appears these new prices are sticking.       Strip 25-year shingles increased 2.7% while 35-year architectural shingles surged 5.0% in price. More shingle price increases are scheduled in the next few months. With all of the heavy storms in the south, expect those price increases to also stick.
  9. Moulding prices edged slightly higher on increased costs.
  10. Vinyl siding increased 2.7% on higher manufacturing and fuel costs.

Notably, some cracks have developed in this four-month price run; however, at this time it is difficult to ascertain if these cracks will foretell a full-fledged market correction. The historical increases that occur between April and May, plus the storms in the south, and the accelerated reconstruction efforts in the Hurricane Sandy area because of warmer weather will probably keep pricing firm.

There seems to be a consensus that high pricing is beginning to affect demand as prospective buyers are putting projects on hold. Satisfactory appraisals are still very tough to acquire by many new home buyers, so a 10.7% year-to-year increase may be too much--time will tell. My recommendation is that builders should limit the time period for which a bid price is good. Times like these are the reason why you should include a price escalation clause in your contract.

If you would like a copy of the price escalation clause (which is linked to this Index) for your contract please contact Rebecca Ballash at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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

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