June 2022 Whole House Commodity Index
By Don Magruder
The RoMac Whole House Commodity Index (Index) for mid-June 2022 dropped 5.0 percent to $54,808 as wood commodities continued their capitulation to more normal levels. Nationally, the housing environment has changed over the last month as the higher interest rates are starting to bite into demand, and the forecast of a ¾ point interest rate increase this week by the Federal Reserve is starting to draw concerns from home builders. I believed that 5 percent mortgage rates would have minimal effects on the housing demand equation, but rates in the 6 to 7 percent range will probably affect demand much harder. There is no doubt the Fed is trying to slow the economy to get inflation in line and the housing market will take some hits.
The only problem for overall home pricing is that inflation in non-wood related products will be much slower to drop as fuel and labor costs will be slow to abate.
This month’s Index reinforces my concerns about inflationary issues in other products keeping overall project costs higher. Wood commodities on the Index dropped 14.1 to 44.9 percent, but the overall Index decline was limited to just 5.0 percent because of increases in cement, doors, and other products. Trucking remains a big issue and fuel prices are driving up logistics costs, and the labor market remains very tight with no companies reducing wages.
Here are the notable price movers over the last 30 days:
1. Concrete and blocks added 12.0 to 19.9 percent in price over the last 30 days.
2. #2 Yellow pine was down with 2x4s dropping 15.3 percent, 2×6 plunging 32.3 percent, and 2×12 pine giving back 23.4 percent.
3. Treated 2x4s were down 14.1 percent and 4×4 posts were flat.
4. #2 Western Spruce went into retreat as 2×4- 92 5/8 studs gave back 35.0 percent while 2×4 dimensional spruce dropped 38.7 percent and 2×6 printed down 44.9 percent.
5. Trusses dropped 5.7 percent on lower pine pricing.
6. CDX plywood dropped 5.8 percent while OSB sheathing dropped 35.4 percent. The CDX plywood market did not retreat as much primarily due to the American plywood mills prevailing in a lawsuit challenging the certification of Brazilian plywood. This is causing disruptions in the CDX space.
7. Interior doors were up 10.0 to 10.8 percent on increased slab costs and higher labor.
8. Exterior doors were up13.0 to 14.8 percent on increased slab costs and higher labor.
9. Garage Door Openers were up 12.4 percent as imports slowed and costs increased at most levels in the supply chain.
10. Cement siding added 4.1 percent on higher logistics costs.
There are several issues which will drive the markets over the next few months of summer.
1. The type of hurricane season we have in the United States will determine supply and pricing in wood commodities, sheathing, roofing, drywall, and insulation. Plus, if rigs and refinery operations get severally hampered in the Gulf over the next few months, the price of fuel will not be the issue – the problem will be availability.
2. The reaction to the Federal Reserve’s interest rate increases could quickly swing the demand equation in housing as rates impede homebuyers. The demand for housing remains very strong, but the ability to buy these homes could be the issue.
3. The continued supply chain disruptions from the war in Ukraine and COVID lockdowns in China could affect ancillary items which are critical to completing construction projects.
4. The lack of supply of concrete and blocks could hamper construction schedules in the summer as the American infrastructure plan starts producing roads, bridges, and other infrastructure projects.
One thing that remains in the housing market is uncertainty. Whatever you think is reality today could be totally changed in late August. Builders should continue to protect themselves from price escalations and construction delays.
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. For great videos and Don’s weekly column, go to www.AroundTheHouse.Tv to subscribe to our YouTube channel and weekly updates.
For previous Whole House Commodity Index reports click the button below.