June 2019 Whole House Commodity Index
WHOLE HOUSE COMMODITY INDEX – June 2019
by Don Magruder, CEO of RoMac Building Supply
With June’s decline in pricing, the RoMac Building Supply Whole House Commodity Index (Index) has seen all gains virtually wiped out for 2019. The Index for Mid-June is $32,508, and the last time the Index was this low was September 2017, just before Hurricane Irma. The market has essentially wiped out all increases for 2017 and 2018. Over the last 30 days, the Index dropped 1.9 percent, which is the fourth monthly decline in a row. The mid-June numbers were poised to be much lower just a week ago, but a significant announcement of mill closures and curtailments in British Columbia popped up Western Spruce prices by $60-$80 per thousand. That is a big move and may be an over-reaction given the overall state of the housing market and European spruce flooding the markets.
To understand the full deterioration of the lumber market, consider the United States lumber market since last June (when it was at a record high) is off 43 percent and Western Spruce is down 41.5 percent. The floor of the lumber market was artificially raised as mills are now contending with a 20 percent tariff on Canadian spruce. There is little doubt that the tariffs have not been conducive to growth in the United States housing market.
There is one caveat to consider. Because I have been doing this Index since April 2005, there is a great history of actual costs. Ten years ago (June 2009), amid the Great Recession, the Index was at $23,870.89 or 28.0 percent lower. If the housing demand equation does not improve given the advancement in production and technology, these markets can go lower. We could be farther from a bottom than most would like to admit.
The notable price movers for June are:
- Although Rebar and mesh are down 1.0 percent, they are predicted to go higher in August and September as tariffs on steel start to enter the market.
- CDX pine plywood dropped 2.2% while OSB prices plunged 17.0 percent as OSB manufacturers failed to manage production.
- 2×4 spruce was up 2.0 percent while 2×6 spruce added 6.0 percent. Oddly, spruce studs dropped 0.4 percent, which could be a precursor these spruce dimensional increases may not stick.
- 2×4 yellow pine #2 dropped 10.0 percent with 2×6 pine taking a steep decline by 14.3 percent. 2×12 pine was a little firmer only dropping 5.4 percent.
- 4×4 treated posts dropped 4.4 percent and treated 2×4 declined 8.8 percent.
- Standard casing and base moulding declined 1-3 cents per foot but are expected to increase by month-end on further tariffs.
- Engineered beams added 3.2 percent on higher production costs.
These markets are not in a good place. Housing needs a summer bounce, which has not happened in years, and these tariff issues need to be resolved. Mill curtailments and closures are not good signs for the market. Heavy deflation in commodities is not a good sign. Other building material areas are also seeing pricing pressures mount as builders struggle to find a housing price level to stimulate activity. While some believe deflation in these markets is good for builders, it is not because it is indicative of market erosion.
I have contended for many years that housing is the best real time indicator of the economy because it reflects so quickly to real demand. If this is true, the concern by manufacturers, mills, suppliers, and builders is the market could be deteriorating faster than perceived. I hope not. Over the next 30 days, there will be little to move the market and there could be some short-term market activity with the curtailments. However, real improvement in housing starts is needed the most. Unless there is a significant impact from hurricane season, there will be little to move the market short of a summer housing boom.
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 firstname.lastname@example.org. Plus, for great videos and Don’s weekly column, go to www.AroundTheHouse.Tv to subscribe to our YouTube channel and weekly updates.