June 2017 Whole House Commodity Index

March 2019 Whole House Graph


by Don Magruder, CEO of RoMac Building Supply

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for June dropped 1.2 percent to $32,301 as lumber and panel products retreated from spring highs. There was no appetite to increase prices in other building supply sectors, which hints that the markets are cooling. Unlike Wall Street, the commodity markets are suggesting a different economic future. It appears caution as well as uncertainty are creeping into the housing market.

Recent housing numbers suggest the commodity markets are telling a story few people want to acknowledge. Consider the following housing numbers from April:

  • Florida’s total overall permits for the year in April were up 4.0 percent. However, Florida should be one of the strongest markets in the country if you consider population growth. By no means do these numbers suggest a housing boom. Plus look at how the numbers stack up—single family home permits were up 14.4 percent to 25,833 while multi-family permits dropped 13.1 percent to 11,974.
  • National new home sales were down 11.4 percent in April as compared to March, with inventories stretching out to 5.7 months. Interestingly, the average sale price for a new home was $368,300.
  • National housing permits in April were down 2.5 percent from March while there was an increase of 5.7 percent when compared to 2016.
  • April housing starts dropped 2.6 percent from March and were only up a meager 0.7 percent from 2016.

Here is my view of the numbers as they relate to housing demand:

  • I still contend the “canary in the coal mine” is and always will be commodity pricing. If housing demand is robust, given the market’s ability to control supply, pricing should be firmer heading into the building season. The declines in lumber pricing are concerning.
  • The drop in multi-family numbers may suggest that inflation in land, labor, and material costs is pressuring ROI on multi-family projects. Considering these projects are planned well in advance, the increases from the last few years could be attributed to lower costs that are not available today.
  • The buildable cheap leftover lots from the housing boom in Florida have probably been depleted. New developments are a slow process and the dirt prices as well as the costs to develop land are bringing on real sticker shock. That could be the reason why single-family building is favoring the custom builder on scattered lots.
  • The average selling price being $368,300 for a new home is too high for most first-time homebuyers and the ability to construct a lower priced home, especially in Florida, is almost impossible. The market could be nearing the cross of demand and affordability.
  • Finally, the chaos and inactivity on pro-business reforms may be wearing on the enthusiasm of buyers and builders who are seeing uncertainty seep back into the markets.

In the May Index, there was a slight drop in cost and I noted my skepticism as to whether the market had the legs to rebound. I am growing more concerned that we are having another repeat of prior years where housing didn’t continue its momentum from spring. Despite the threat of additional lumber and steel tariffs as well as increased labor costs, the calls for increased pricing are not being heard.

I hope this is late spring, early summer doldrums for the housing market. Builders and suppliers should be a little wary. There’s no doubt that we would be in a housing boom if the market could produce lower cost starter homes. However, I am not sure that is achievable. To me, this shapes up to be a surging custom home building market, with those homeowners who have the financial means.

The following items had notable wholesale price changes over the last 30 days:

  • In sheathings, OSB sheathing dropped 12.4 percent while CDX pine dropped 6.8 percent.
  • Pine dimensional lumber was down 6.2 to 9.9 percent, with wider-widths leading the way.
  • Truss prices dropped almost 1.0 percent on lower pine pricing.
  • Dimensional spruce was down almost 9 percent while spruce studs gave back 5.5 percent.
  • Treated 2×4-16 was down 5.8 percent and 4×4 posts retreated 4.8 percent.
  • All other pricing was stable.

Just a note—the moulding companies are forecasting some fairly significant price increases in July as increased overseas pricing is coming to fruition. This has more to do with the country’s trade policies than it does demand.

One caveat is that we are entering hurricane season. The forecast is for more threats and a hurricane such as Matthew could throw the markets into turmoil. Builders should monitor both the weather and demand. I expect mills and manufacturers will hold onto pricing if they can, but they must see better housing numbers. Builders should remain cautious in their bidding and realize that numbers may have to be sharper.

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.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. 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@romaclumber.com.