July 2018 Whole House Commodity Index

July 2018 Whole House Graph


by Don Magruder, CEO of RoMac Building Supply

Since mid-June, the Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) dropped 1.9 percent. This marks the first decline in the Index since December 2017. The Index increased 10.1 percent from January through June 2018, so this retreat may be the first sign of market headwinds. Little doubt, the price run could not continue at this pace. Reports of projects being delayed or cancelled because of pricing are starting to be heard.

The big question is, “Does July’s drop in pricing represent a breather or a new downward trend?” The answer may be found in the weather reports over the next few months. A mild hurricane season coupled with continued interest rate increases could cool these hot markets.

Wood commodities and sheathings pushed lower as demand softened and most lumber dealers had little appetite to buy over-priced wood. Hand-to-mouth purchasing is okay if there aren’t any hurricanes—this is when the volatility can slap back hard.

Here are the significant price movers for the month:

  • Metal foundation wire mesh added 12.9 percent while foundation rebar retreated 4.4 percent. The supply chain is disjointed and teetering on what is available.
  • CDX pine plywood dropped 11.7 percent while OSB Sheathing retreated 21.5 percent. The current demand simply cannot support these prices.
  • 2×4 yellow pine dropped 11.7 percent, 2×6 declined 13.7 percent, and 2×12 pine gave back 6.3 percent.
  • 2×4 spruce dimensional dropped 4.7 percent, 2×6 spruce was off 8.8 percent, and 2×4 studs stayed flat with a 0.6 percent decline. Carloads of studs remain harder to buy.
  • Metal hangers added between 12 to 16 percent due to steel tariffs.
  • Drywall added 4.0 percent on increased manufacturing costs from a mid-year planned increase.

Inventories are low, the markets are in flux, and everything is primed for volatility. Builders should pray for a quiet hurricane season if they want to see these declines continue.

The last half of the year will need to see increased permit activity to support these pricing levels. The hoopla of tariffs is waning, and manufacturers will have to decide if they want to sell products. Just as bad as the weather, builders need the politicians in Washington, D.C. and those moving interest rates to settle down, so the markets can stabilize. Chaos and uncertainty must ease if this building cycle has any chance of continuing.

My advice this month is simple—watch The Weather Channel for a quiet hurricane season and watch CNN to see if the chaos and tariff talk in Washington, D.C. calms down. We need calm in these markets now.

The Ro-Mac Lumber & Supply, Inc. 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.