January 2020 Whole House Commodity Index

By Don Magruder

The RoMac Building Supply Whole House Commodity Index (Index) for January 2020 dropped 0.3 percent to $32,889.29, which is within $2.00 of last January’s Index. This month’s Index is almost exactly where it started last year. Wow! That is a lot of gyration without much progress.

It also tells a story of the malaise in housing nationally. The wood commodity markets were a tough place to make a living last year and most sectors in the construction supply chain struggled to increase pricing. Although increased labor and fixed costs were not passed along to builders last year, it appears that will change in 2020. Based on the huge wave of building material price increases being announced for the first quarter, coupled with the efforts by wood commodity mills and manufacturers to control supply, it appears 2020 will have inflation.

The notable price movers in this month’s Index are:

Foundation wire mesh dropped 4.8 percent.
CDX pine plywood dropped 4.8 percent while OSB sheathing gave back 4.4 percent.
Pine 2×4 dimensional lumber increased 2.3 percent while 2×6 pine surged 9.0 percent and 2×12 pine added 7.9 percent.
Dimensional 2×4 and 2×6 spruce increased almost 2.0 percent while studs added almost 3.0 percent.
Trusses dropped 3.7 percent on lower pricing on specialty truss pine.
Drywall added $10.00 to $15.00 per thousand, or an increase of 4.8 to 5.8 percent, on announced yearly increases.
Exterior door pricing added 6.0 to 7.2 percent due to higher pricing for door slabs and jambs.

The increases in many basic building material items are being masked in January because of the price declines in sheathings and trusses. It is a safe bet these items, along with others, will increase over the next 30 days. As a result, February’s Index should be higher.

Interior Masonite Doors are going up 25.0 percent on door slabs in February and most window manufacturers are adding 5.0 to 7.0 percent as well. There is a plethora of increases poised over the next 60 days, which will increase the cost of construction. There appears to be an unwillingness by manufacturers to cave on these increases. The harsh margins in 2019 may force manufacturers to either hold a hard line on increases or curtail production.

I wrote the following in the January 2019 Whole House Commodity Index:

I believe spring will usher in higher pricing like it does historically; however, I do not see the levels like those from 2018. If housing demand does not improve and the chaos in Washington, D.C. subside, expect the economy to sputter, which could lead to more downward pressure on pricing.

My projection occurred—downward pressure in the market resulted in no net increase for the year.

My forecast for 2020 is inflation. It appears manufacturers will have to choose between increasing prices or curtailing production. Plus, with the current negative world trade situation with America and the rest of the world, there are few options for lower-priced imported goods.

With 2020 being an election year, builders should prepare for higher pricing and continued chaos in the markets. This is the year wherein builders should have a viable Price Adjustment Clause in their contracts. RoMac Building Supply has developed one based on this Index. To obtain a copy of the Price Adjustment Clause, email Rebecca Ballash at rebecca.ballash@romacfl.com.
Builders should review their projects scheduled for later in the spring and build in inflation to cover cost increases. They should also prepare for longer lead times on specialty products. The better you plan the less problems you will have.

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 sign-up for the Index and other free market reports. To sign-up for this information via email, contact Rebecca Ballash at rebecca.ballash@romacfl.com. For great videos and Don’s weekly column, go to AroundTheHouse.Tv to subscribe to our YouTube channel and weekly updates.