May 2019 Whole House Commodity Index

Whole House Commodity Index – May 2019

By Don Magruder

In last month’s RoMac Building Supply Whole House Commodity Index (Index), I expressed concern that a continuing decline in the commodity markets could foretell a declining housing market for the rest of 2019. The decline in pricing has continued, the national housing reports remain lackluster, and my concern continues to increase.

Over the last 30 days, the Index declined 0.9% to $33,135, and the declines were broad-based. Previously announced increases in non-wood commodity products are showing signs of weakness and the huge elephant in the room continues to be Washington, D.C. and tariffs. It seems uncertainty is creating more concern in housing than other sectors.

The notable price movers for this month are listed below:

  • Rolled poly declined 8.0 percent.
  • CDX pine plywood dropped 3.2 percent while OSB sheathing declined 2.2 percent.
  • Yellow pine was down across the board—2×4 declined 3.9 percent, 2×6 was down 7.1 percent, and 2×12 dropped 4.8 percent.
  • Spruce studs dropped 1.3 percent while dimensional 2×4 spruce contracted 2.6 percent and 2×6 eased off 5.7 percent.
  • House wrap increased 11.8 percent.
  • Insulation board was up 11.6 percent.
  • Trusses were flat with a 0.4 percent increase on labor.
  • Architectural shingles dropped 7.7 percent on market pricing.

While the decreases have slowed, a bottom has not cemented.

One year ago, this Index was $35,581 (or 6.9 percent more). That is real deflation in materials, but many builders argue those decreases were offset by high labor costs. Just like building materials, there seems to be signs that the labor market is also easing.

Without a real increase in housing demand, which must be fueled by a decline in home pricing, both labor and material costs in construction will struggle to maintain current levels. The newly imposed tariffs on Chinese goods could potentially add more challenges for builders. It appears that commercial projects are the most vulnerable with the heavier usage of steel, aluminum, and imported products.

Mortgage rates are around 4.1 percent, which is historically low. Housing starts are around 1.1 million, which is down from last year; however, the average home price is at $376,000, which is up versus last year and just a couple of months ago.

Simply put—average working Americans cannot afford to buy a home. There is a demand for housing but not the money. Regulations, land costs, impact fees, stagnant wage growth, and now tariffs have knocked out many potential homebuyers.

While there may be some volatility in the market as hurricane season approaches, the remainder of 2019 could be real challenging for the construction market. It is a demand issue.

Builders should watch for volatility and be mindful that hurricane season starts in a couple of months. Plus, who knows the effect tariffs will have. Commercial builders could end up underwater on projects quickly if these tariffs go in unabated. Be careful—letters have been sent out announcing significant increases in steel products to take place in early June.

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 rebecca.ballash@romacfl.com. Plus, for great videos and Don’s weekly column, go to www.AroundTheHouse.tv to subscribe to our YouTube channel and weekly updates.