May 2020 Whole House Commodity Index
The RoMac Building Supply Whole House Commodity Index (Index) for mid-May surged upward 3.1 percent to $34,054, recapturing the losses from April. In April’s report, I cautioned that with the high demand in the secondary markets coupled with mill curtailments, there could be a quick turnaround in market pricing as supply becomes thinner. I wrote the following, “If these shutdowns and curtailments persist for another month, expect more supply disruptions and higher costs.” The process of states opening back up is the catalyst in causing increased demand in a supply chain that is struggling to crank up with COVID-19 (Coronavirus Disease) restrictions in the workplace as well as a slow return of workers due to rich government unemployment benefits.
Here are the notable price movers in the Index over the last 30 days:
- Wire mesh dropped 10.5 percent and rebar was down 2.0 percent on decreased demand as well as imports finally reaching the shore.
- CDX pine plywood was up 30.5 percent while OSB added 41.6 percent on increased demand and thin inventories in the supply chain.
- Pine prices increased dramatically as the big-box stores pushed demand for premium treated products and do-it-yourself homeowners flooded stores to catch up on home improvements. 2×4 pine increased 35.7 percent, 2×6 pine jumped 49.0 percent, and wide-width pine 2×12 was 9.3 percent. Dealers are struggling to find material and premiums are being paid for available products.
- Mill curtailments and thinning inventories increased spruce pricing across the board. 2×4-92 5/8 studs added 8.1 percent while 2×4 dimensional spruce jumped 8.4 percent and 2×6 spruce eased up 1.4 percent. This market has more room to move as the northern regions start cranking up work on jobsites.
- 4×4-8 treated posts were up 32.1 percent on high retail demand through the big-box stores and borate treated pine bottom plate was up 30.3 percent.
- Colonial casing added 6.9 percent and 3-1/4-inch base increased 9.7 percent as fears of supply issues mount from South America.
There is also a trickle-down effect going on through other areas of the building material supply chain as lead times for windows and doors have stretched out an additional three-plus weeks and plants struggle to gather components and workers to manufacturer products.
My outlook for the next 30 days is to expect prices to continue increasing. In addition, there could possibly be some supply disruptions. It depends on how hard and fast the locked-down regions of the country crank up construction. I believe it will be faster than we think.
If that does not concern you, hurricane season starts on June 1st, and forecasters are predicting a bad year. A threat of a big hurricane or a major hurricane making landfall on the United States could exacerbate market demand and an already disrupted supply chain. I am fearful of long-term pricing matrixes. Builders should have a price escalation clause in their contracts for the remainder of 2020. If you would like to have a price escalation clause based on this Index, you can contact Rebecca and she will send you the one we have created.
My advice is simple—stay on top of the market by talking to your suppliers and do not wait too long to place orders. Plan accordingly.
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. For great videos and Don’s weekly column, go to www.AroundTheHouse.Tv to subscribe to our YouTube channel and weekly updates.