March 2017 Whole House Commodity Index
WHOLE HOUSE COMMODITY INDEX – March 2017
by Don Magruder, CEO of RoMac Building Supply
If the commodity market could have a psychiatric analysis, there is little doubt the current market would be diagnosed with anxiety and bi-polar disorders, with big mood swings that change with the weather. Thirty days ago, with the expiration of the United States-Canadian Softwood Lumber Agreement, the wood commodity market was in a panic. The market was anxious about the trade policies of the new Administration and was very excited and busy with an unexpected mild, warm winter. Prices were going up quickly and many thought the run was going to last.
A month later, spruce pricing is dropping because buyers refused to stock the wagon with the high priced lumber, the anxiety over the Softwood Agreement and new Administration subsided, and winter decided to make a late season curtain call. Another factor that no one wants to admit is that demand is not taking off as expected. In addition, higher interest rates and increasing building costs are having a negative effect on the market; and every year the Northern areas have a mild winter, the building season runs out of pricing legs, usually by late April or early May.
The Ro-Mac Lumber Whole House Commodity Index dropped an unimpressive 0.1 percent to $32,294, as advancers and decliners offset one another. The two headlines in pricing are the decline in spruce lumber and the minor market adjustments in drywall and roofing. I am not sure if the roofing and drywall manufacturers have the discipline to hold announced pricing in the face of inventories sitting on the ground and volatile sales.
The notable price movers on the Index for mid-March as compared to February are:
- Dimensional pine lumber joined the price increase party late and, over the last 30 days, 2×4 pine added 2.0 percent, 2×6 pine jumped 3.3 percent, and 2×12 pine led the way with a 6.6 percent increase.
- Both 2×4 and 2×6 #2 spruce lumber gave back 7.6 percent, as buyers resisted the higher prices and anxiety waned.
- As mills searched for buyers, 2x4x92 5/8 #2 spruce studs dropped 6.0 percent.
- Truss prices gave back 0.7 percent – basically flat.
- CDX pine plywood added 4.0 percent and OSB sheathing added 4.2 percent, or almost 50 cents per sheet.
- Treated 4×4-8 posts were up 5.2 percent on seasonal demand, while treated 2x4s were up almost 2.0 percent.
- The wood engineered beam for our home was up 5.2% on announced price increases.
- The shingles market adjusted downward to less than 2.0 percent while drywall followed with its own 2.0 percent drop.
- Announced window increases hit in March, lifting window pricing by 5.0 percent.
- Rebar pricing traded 3.4 percent down, but all are warning this is just secondary suppliers pushing out the product. New steel is going to be higher because of new tariffs on imports from Turkey.
It remains to be seen if the spruce markets are in retreat or regrouping for another spring run.
Unless there is a spring pop in construction, the chance of another spruce run in the next few weeks is very slim. A week of winter weather has stopped building in a large section of the country, but mills are still cutting wood. This supply has to be sold and cleared before pricing can go up. I also believe that suppliers will stare down mills as long as they can before buying. Now, some mill people believe that once the weather breaks and the suppliers have to reload their wagons, prices will resume their run. I am just not buying that right now. The little retreats in other building products suggest an uneasiness in demand.
Builders should remain wary on long-term pricing until there is more clarity, especially until the Softwood Tariff Agreement and the trade issues with steel are resolved. Labor shortages and wage increases appear to outweigh any pricing concerns at this point.
We had a lot of builders and contractors ask us about the Price Escalation Clause Ro-Mac Lumber developed for builders, which is tied to our Whole House Commodity Index. We have decided to include it for your review at the bottom of this report. As usual, we suggest you seek your own legal advice before adding it to your contract.
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 email@example.com.
Price Adjustment Clause for Contract
If the Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (“Index”) released for the month preceding the date of this contract increases by more than 5%, then the amount of the contract shall be increased by taking the percentage of increase of the Index and multiplying same by 22% of the total contract price. For example, if this contract was for $150,000 and the Index increased by 5% prior to the termination of this contract, then this contract will be increased by $1,650.00. This is determined by taking 22% of the contract price, or $33,000.00, and multiplying it by the 5% increase, which produces the $1,650.00.
(Please note, the 5% Index increase factor can be adjusted up or down by the builder to activate the clause)
Information About The Clause – Do Not Include In Contract
- The clause was developed by Leesburg attorney, H. D. Robuck, Jr., Esquire. This is not intended to give legal, accounting, or business advice. You should contact your own attorney, certified public accountant, or business advisor.
- The Ro-Mac Lumber Whole House Commodity Index originated in April 2005. Ro-Mac releases the Index to the public monthly, which represents the current weighted cost for structural commodity items to build a 2,200 square foot frame house on a stem wall.
- The Index is based on current replacement wholesale and manufacturing costs to give prospective buyers a preview of commodity pricing for the next 45 days.
- The Index includes foundation steel, concrete blocks, cement, wood framing, sheathing, trusses, roofing, interior and exterior doors, windows, insulation, drywall, moulding, garage doors, hurricane hardware, and exterior trim.
- The Index does not include labor, plumbing, electrical, mechanical, appliances, décor, landscaping, or items not listed above.
- The 22% factor for structural commodity components was derived from local market data in Central Florida, and based on general construction and code practices of the area.
- Builders, remodeling contractors, and the public can be placed on the email service to receive the Index monthly by contacting Rebecca Ballash at firstname.lastname@example.org.
- Pricing and data to support the Index is available for review in person at Ro-Mac Lumber & Supply, Inc., 700 E. Main St., Leesburg, FL 34748. Ro-Mac Lumber & Supply, Inc. maintains proprietary control of the information and will not email or reproduce it for general release.