February 2019 Whole House Commodity Index

graph FEB-2019

WHOLE HOUSE COMMODITY INDEX – February 2019

by Don Magruder, CEO of RoMac Building Supply

The RoMac Building Supply Whole House Commodity Index (Index) increased 2.5 percent to $33,749, reversing the 1.2 percent loss from January. Wood commodities strengthened on the hopes of improving weather and logging issues. Plus, most wood commodities added on average $3 per thousand in freight costs. Although trucking issues have eased a little, the cost of labor and operating commercial vehicles continue to increase — especially insurance coverage due to distracted drivers.

To put this February’s pricing in perspective, let’s take a glance back. Last February, the Index was $34,030. So, this year’s price is about 1.0 percent less. Considering the cost increases in freight, that’s somewhat notable. Compared to the high point of 2018 in June when the Index was 36,437, February’s Index is down 7.4 percent.

In mid-February, a preseason price run is typically normal as weather improves and builders grow hopeful for the year.

Here are my concerns about the markets:

  • The construction demand in the United States at this point is not supporting a huge runup in pricing. For 2018, Dodge Analytical says commercial building and multi-family construction was only up 4.0 percent with many markets seeing downturns.
  • Abby Samp of Oxford Economics writes, “Despite strong economic growth, total construction starts in the US fell by 5.0% in 2018 to reach $744bn. Residential construction starts experienced the steepest decline, by 9.5%, dragged down by a 26.7% contraction in new multi-family units.”
  • Finally, the National Association of Realtors reported a 6.4 percent decline in existing home sales for December. That is an awful number, which does not bode well going into the New Year.

Housing permits, starts, and sales have been schizophrenic for the last year indicating there is no real direction in the market. If the national housing demand equation does not get on a firm march forward, expect volatility in pricing.

The following are the major price movers for the Index as compared to January:

  • Yearly price increases in concrete hit many in January. Concrete stretcher blocks were up 7.0 percent; header blocks added 3.4 percent; and, 3000# jumped 3.4 percent. In addition, many suppliers are now tacking on delivery fees.
  • CDX pine plywood increased 4.3 percent while OSB sheathing added a strong 15.3 percent.
  • Pine lumber is having logging issues in the south with the rain, especially for wider widths. 2×4 pine added 11.4 percent; 2×6 pine was up 13.3 percent; and 2×12 pine soared 28.6 percent.
  • Spruce prices jumped on winter’s issues delivering railcars and increased hopes of business. 2×4 spruce increased 23.4 percent; 2×6 spruce added 24.0 percent; and spruce studs moderately increase 6.8 percent. Although the increases were heavier the first three weeks of the period, the last week or so seems to have stopped the price increase momentum.
  • Truss prices were up 2.1 percent on increased pine pricing.
  • 4×4-8 treated pricing was up 14.8 percent on spring demand.
  • Drywall retreated 3.1 to 4.7 percent, with announced increases delayed for a month due to demand concerns.
  • Window prices were up 5.0 percent on manufacture’s price announcements due to increased labor and material costs.
  • Colonial casing was up 9.1 percent on overseas supply concerns and tariffs.
  • Vinyl siding was up 13.9 percent with trim adding 5.8 percent—manufacturing citing labor and material cost increases.

In this list for the month are yearly price increases, additions in freight charges, and hopes by manufactures and mills that the spring thaw will increase demand. The delay in drywall increases and the sudden stop of spruce increases makes me wonder if pricing is bumping up against demand.

If home prices continue to escalate and shrink the number of buyers, expect 2019 to remain volatile and probably trend lower. Be careful with getting too many spec homes in the ground in case the February market run is not sustained over the next few months. Protect yourself against higher pricing this summer; however, I don’t really see it happening and I definitely don’t see a repeat of 2018’s monster price runup.

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. Go to romacfl.com to see the Index and other free market reports.