August 2021 Whole House Commodity Index
For the second straight month, the RoMac Building Supply Whole House Commodity Index (Index) dropped, and over the last 30 days, there have been significant corrections in lumber and plywood with many coming over the last few weeks. Just a reminder, this Index is based on the wholesale delivered price to Central Florida as of the 15th of each month, and it should be an accurate forecast of pricing over the next two or three weeks. Pricing at the wholesale level typically takes 2-3 weeks to flow to the dealers and builders as lead times and on-hand quantities must flush resolve.
For August 15, 2021, the Whole House Commodity Index dropped 15.5 percent to $43,072 and the decline was mainly led by sheathings and spruce. 2×4 pine dimensional went up in price with other widths giving indications they have bumped a bottom. We have forecasted that commodity pricing would ease in late May through July as the country went on vacations and the big box retailers saw a retreat of disposable income to leisure and travel, but the drop’s magnitude and continuation in August is a little surprising. I think there are two words that can be used to explain it – Delta Variant. In May and June, no one expected another huge wave of the COVID-19 virus as America was getting vaccinated, and this new wave is throwing a lot of uncertainty into the markets.
To really judge how the average price of materials has been affected consider this Index versus August 2020- one year ago. It is 8.9 percent more, and since January the Index has dropped 6.4 percent. These numbers indicate a lot of volatility that appears to be far from over.
Before I get into the details of the Index, there are a few things to point out that builders should remain very concerned about and in my view, be very careful about adjusting pricing down quickly.
- First and foremost, there remains a tsunami of new housing starts, and commercial construction starts forming in the third and fourth quarters of 2021. The demand equation portion of the market has not changed. Housing inventories in Florida remain at almost record lows.
- Next, this surge in the COVID-19 Delta Variant is once again playing havoc on manufacturing and the overseas market. The only price declines were in wood commodities and for the most part, these markets are probably much closer to the bottom after this month.
- The $1.2 trillion infrastructure bill was passed by the United States Senate, it will pass the House of Representatives, and it is going to be enacted. This will increase the pressure and demand on concrete and steel which will be huge issues going forward.
- Once this Delta Variant settles in the next month or so, the markets will heat back up.
- Finally, the hurricane season is heating up quickly, and one bad storm in the United States could quickly reverse sheathing prices. While I do not expect the record levels of earlier in the year, these markets could firm quickly, and supply could become constrained again.
In short, builders should be very careful in lowering prices for projects starting later in the year.
Here are the significant price movers over the last 30 days:
- Wire mesh jumped 2.3 percent if you can find it. Extremely tight to find and foundation metals continue to be a problem in procurement.
- 19/32” CDX dropped a whopping 60.7 percent to more normal levels while OSB dropped 61.4 percent. The next four weeks of hurricane season could quickly reverse these trends.
- 2×4 pine added 1.6 percent in price while 2×6 settled downward 36.0 percent and 2×12 pine dropped 27.7 percent. Once again these are about normal levels.
- 2×4-92 5/8 studs dropped 29.2 percent while 2×4 dimensional #2 spruce retreated 31.6 percent and 2×6 gave back 42.8 percent.
- 2×4 treated was up 1.5 percent and 4×4 treated declined 6.9 percent.
- Rolled house wrap jumped 11.0 percent on tight supply and increase raw material costs.
- Metal connectors added almost 10 percent on monthly increase in steel costs.
- Pocket frames added 3.5 percent on much higher steel costs for tracks.
- White vinyl Low-E windows added almost 5 percent and sliding glass doors increased 10 percent on higher raw material costs and continued extended lead times. COVID-19 Delta Variant infections are beginning to affect production.
- Interior doors jumped 3.2 to 6.0 percent on higher jamb and molding costs.
- Exterior Doors increased almost 6.0 percent on higher material costs and continued excess demand.
- Cement siding increased 6.1 percent on higher material costs and extended lead times.
In the future, drywall manufactures are calling for an additional 20 percent increase and most shingle companies have announced 4-6 percent increases.
As you can see, the correction in the wood and sheathings markets has not translated to other areas of the building material supply chain as labor, COVID-19 delays, and raw materials price escalations persist.
Currently, the COVID-19 Delta variant is driving the markets more than anticipated, but in a month from now it could be a major hurricane. Be careful as volatility appears to be far from over.
The RoMac Building Supply 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 RoMac Building Supply in Central Florida. To sign up for this information via email, contact Keri Sudman through our contact page. For great videos and Don’s weekly column, go to the Around The Hosue site to subscribe to our YouTube channel and weekly updates.