August 2022 Whole House Commodity Index
By Don Magruder
The RoMac Whole House Commodity Index (Index) for mid-August 2022 increased 3.3 percent to $54,798 from last month, and this is the first increase to the Index since March, which probably indicates the wood commodity markets have solidly hit bottom, and that inflation in other building material sectors continues due to higher fuel and labor costs. While there is a debate raging whether the country is heading to recession or not, one thing is for certain; labor costs and availability have not improved, especially in Florida. Labor, as well as energy and fuel, are huge drivers in the building material sectors and price capitulations will be extremely slow; if at all.
Here is one stunning fact to consider about this month’s report – it is 27.0 percent more in price than last year, and it appears to be bottomed and moving higher.
One silver lining is hurricane season through mid-August has been much quieter than expected, and over the next 8 weeks during the peak of the season, the markets need a break with a slow season. Couple of intense hurricanes could quickly inflame the plywood and OSB markets as ground inventories appear to be low.
To say builders are in very uncertain times and markets are a complete understatement. The economy, housing market, demand, inflation, and hurricane wildcard could send the housing market in several directions. The increase in the Index this month is a huge sign and one thing to note – last fall had one heck of a price run. If the country is adjusting to higher interest rates as well as inflation, and the stock market and overall economy improves, builders could see a real pop in business in the fall, as the one fact remains, especially in Florida – there is a housing shortage. Plus, noise from the Federal and State government suggests real affordable housing programs may be in the offering.
In short, builders’ volatility remains; and don’t be lulled into believing there is about to be a full capitulation in building material pricing and labor costs. I simply don’t see it now.
Here are the notable price movers in the last 30 days.
- Concrete and block shortages persist in Central Florida with pricing increasing daily on higher fuel and labor costs. Concrete is up 2.3 percent while blocks added 1.7 to 14.5 percent.
- Foundation rebar dropped 5.0 percent on heavier supply offerings.
- Mortar mix for stucco added almost 5 percent while sand jumped 23.3 percent.
- CDX pine plywood was up 10.8 percent and OSB sheathing added 9.6 percent. Keep in mind, a couple of intense hurricanes will surge these numbers within days.
- 2×4 pine dimensional lumber is up 11.7 percent on continued pressure from Truss Plant demand and a surge in 6.9 percent increase in treated 4×4-8 post over the last month. 2×4-16 treated borate pine was up 9.9 percent.
- 2×12 pine lumber is down 4.0 percent as LVLs become a little more plentiful and 2×6 pine added 6.3 percent on continued demand improvement.
- Reduced Canadian duties help to bring spruce prices down. 2×4 spruce dropped 8.1 percent while 2×6 spruce basically was flat with a .7 percent decline. Studs gave back
- Trusses were up 12.6 percent on higher pine and labor costs as well as surge in pricing for new equipment, which is almost impossible to find promptly. Most truss plants especially in Florida are struggling with staffing.
- Insulation added 10 percent on increase costs from the manufacturer.
- Shingle pricing increased 5.6 to 5.9 percent on higher energy costs in the sector.
- Drywall pricing was up 8.0 to 9.0 percent on heavy demand overall and resurgence in business in the commercial sector. Tile backer added 31.3 percent on limited supply.
- Ancillary products like some screws and poly tapes added plus 10 percent because of increases from manufacturers.
I continue to preach that the overall inflation picture in housing is being masked by the massive deflation since March in wood commodities. If the mills continue to manage supply, builders should expect a firming and increase in those products. The hurricane wildcard could quickly upend markets in sheathings, drywall, insulation, and windows.
Uncertainty remains, but an improving economy and continued hot labor market does not bode well for much price capitulation. Builders and contractors should be slow in bidding projects that forecast lower pricing. Just look at what happened last year.
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.