June 2021 Whole House Commodity Index
In the RoMac Building Supply Whole House Commodity Index in April of this year, I wrote in reference to commodity wood pricing the following, “I expect prices could moderate in the months of May and June if jobsite delays for windows and other products continue to persist.” On que, lumber pricing has settled a little in the last 30 days, and more so due to a slowdown in retail lumber sales in the Big Box locations as much of the country is going on vacation. However, this month’s framing lumber pricing is still above April’s and there has been no retreat at all in either OSB sheathing or CDX plywood.
The RoMac Building Supply Whole House Commodity Index (Index) for June 2021 increased 1.4 percent to $57,542 on the strength of major increases throughout the other building material sector. The lumber declines on our Index did not offset the overall increases in other areas, and Builders need to be mindful that the price of their homes did not decrease in cost to build. I know this is a very hard pill to swallow, but the supply chain in all sectors remains disruptive, and trucking has become a disaster.
To better gauge the dramatic increase of the price of a home since this pandemic began last year, consider these two numbers – since June 2020, one year ago, this Index has increased 63.9 percent and since January 1st of this year, the increase is 25.1 percent. At minimal, this is how much you should have increased the price of your home. Understanding our Index does not include décor, plumbing, electrical, HVAC, and landscaping, it is safe to say with labor cost increases and increased prices in these other areas the amounts should be close. Builders, this is your best analysis to true cost.
The following are the major price movers on the June Index:
- Foundation wire mesh increased 38.5 percent and almost non-existent to find. Rebar held steady, but most are forecasting continued increases.
- CDX pine plywood added 9.4 percent while OSB sheathings continued its march up in price by adding 7.3 percent. Supply is extremely short, and some are experiencing shortages in OSB sheathings.
- 2×4- 92 5/8 #2 Spruce studs retreated 8.1 percent while 2×4 dimensional spruce dropped 19.8 percent and 2×6 gave back 19.5 percent.
- Pine dimensional lumber fell in price similarly. 2×4 pine dropped 19.1 percent, 2×6 pine retreated 22.1 percent while 2×12 pine stayed steady only dropping 1.0 percent.
- Roof truss prices were up .5 percent despite the drops in lumber as metal truss plates across the board added 15.0 percent and labor continues to be more expensive.
- Pocket frames were up 5.6 percent, but there is a major shortage in pocket frame metal hardware and lead times are stretching out for supply to almost 20 weeks. Plus, expect Expect huge increases in metal hardware for pocket frames in the next few months.
- Rolled sill material added 8.1 percent as foam accessories are in short supply.
- Engineered wood glulams added 16.0 percent as demand and shortages of raw material play havoc on this sector. Expect shortages in engineered wood items.
- Roofing shingles increase 6.7 percent with additional increases announced for later in the month.
- Metal roofing accessories are up 15.0 percent and almost non-existent in the marketplace.
- 1/2x4x12 drywall added 8.2 percent and other board was up in the high single digits as supply has grown tight with extended lead times.
- Windows added 12.0 percent with additional increases forecasted and the supply chain is in shambles. Lead times of 16 to 30 weeks are commonplace.
- Exterior door pricing was up 7.5 percent on manufacturer’s increases and supply remains tight especially for special order slabs and door lights.
- Interior doors were up 5.0 to 6.9 percent on higher pricing in both slabs and moulding. Double-digit increases in moulding have been announced for later in the summer and some jamb material is simply not available.
- Cement siding added 4.2 percent on increase costs from the manufacturer.
Here is the problem. There are many areas of Florida where the housing inventories are less than a month, and unlike the Housing Boom of the 2000s, people are buying houses to live in, not for speculation. There is a Tsunami of new home construction planned for Florida, and despite what you might think, housing demand is strong across the country. Millennials entering the marketplace along with pent up demand from COVID-19 is overwhelming a building material supply chain that has been disseminated by a decade of underperforming housing starts.
Everyone wants to know what to expect in the future. Here are my thoughts and like any forecast, circumstances can change:
- I have said since December, I expected the commodity markets to settle in May and June because of vacations as the virus resolves itself.
- The Tsunami of housing starts in the third and fourth quarter is real. Right now, builders are buying land and, planning projects at a frenetic pace. The housing demand equation will intensify even with an interest rate increase from the Federal Reserve.
- There is no new home inventory on the market, and builders will be forced to build despite the shortages and longer-lead times. There are just too many buyers who are available who have the means to afford a new home.
- The slowdown of multi-family housing construction due to the lost year in the pandemic will keep the rental markets tight especially later in the year.
- Steel is a huge issue as well as cement, but steel more so. Anything built with steel will go up in price and harder to find as the world supply of steel will be outstripped with demand. If the United States passes an infrastructure bill, these products will only get tighter in supply.
- Trucking in America is nearing a disaster. Trucks are in short supply, and though prices on commodities may drop for a time, getting the product to suppliers will delay decreases. Plus, the cost of all transportation is forecasted to rise dramatically. Some are expecting 100 to 200 percent increase in sea freight rates this year which will impact the markets dramatically.
- The bottom line is simple. While there will be ups and downs in the commodity markets, the trajectory is upward. Pricing for supplies will remain high due to the escalation of the housing demand. I still do not see how this supply chain disruption in all sectors resolves itself quickly.
I am concerned builders will only look at the lumber market as their guide for pricing and that will be a huge mistake. Lumber, especially in Central Florida. is not the main component in construction.
Finally, if we have a bad hurricane season, which is forecasted, there will be no supplies to rebuild. Safety stock levels that are normally in place for hurricane season like plywood, sheathing, roofing, and drywall are non-existent. A major hurricane strike in America will have devastating consequences for builders and those affected by it.
Builders should be very skeptical to adjust pricing on blips in the commodity markets because we have not even discussed the labor availability and cost outlook if housing demand does increase in the third and fourth quarters.
It is imperative that you have a Price Adjustment Clause in your contracts to protect yourself regarding pricing. RoMac Building Supply offers, for free, a Price Adjustment Clause for Contracts, which is linked to this Index. It can be obtained by contacting Keri Sudman through our contact page.
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 Keri Sudman through our contact page. For great videos and Don’s weekly column, go to the Around The House site to subscribe to our YouTube channel and weekly updates.