May 2022 Whole House Commodity Index
by Don Magruder
The RoMac Whole House Commodity Index (Index) for mid-May 2022 fell 1.9 percent to $57,678, and while this is the second straight month of decline, the collapse in pricing many have hoped for, appears not to be materializing. Overall housing and construction demand remain strong with the multi-family and commercial markets cranking up, but the hard reality of elevated costs in energy, labor, raw materials, and transportation are roadblocking any freefalls in pricing currently. Simply put, the inflationary picture in the world is preventing companies from dropping costs. Most mills will curtail production rather than operate with a loss.
In all likelihood, the impact of the Russian-Ukraine War will really start rearing its ugly head in early summer as metals, steel, chemical production, and lumber from that area stop flowing as most imports are ceasing. A slowdown in Russian timber worldwide will impact the North American spruce markets plus, the continued COVID-19 issues are jamming ports and adding to supply chain woes.
The wood and sheathing markets were mixed over the last 30-days indicating that manufacturers and mills are trying to cement a bottom. Plus, this month, costs rose $17 per thousand on increased rail transportation expenses from Canada. Expect transportation costs to soar as fuel and trucker availability continue to styme the supply chains.
Because of the American Infrastructure Act and continued growth in commercial construction, cement is poised to take a big price increase in early summer, and foundation metal prices continue to be affected as scrap steel from overseas is being pressured by the war.
Another concern is that many dealers are reporting lower inventories on the ground due to high costs and cash concerns. This will add fuel to volatility in the markets because a mill fire or shutdown could cause havoc immediately.
Here are the notable market movers over the last 30 days.
- Foundation rebar added 12.5 percent while wire mesh retreated 12.7 percent. This is truly a function of what is hitting the ports and vendors trying to move products. This sector continues to point toward trouble.
- 5/8 CDX Pine Plywood added 1.0 percent while OSB sheathing jumped 9.7 percent. Demand remains strong and supply continues to be challenged for quick deliver.
- Dimensional spruce was mixed with 2×4 spruce adding .1 percent while 2×6 spruce dropped 6.3 percent. Spruce studs added 5.9 percent.
- Pine dimensional markets were flat to mixed. 2×4 pine was flat, 2×6 pine added .7 percent while 2×12 pine retreated 18.1 percent. 2×12 pricing remain historically high and the declines are just peeling some greed out of the market. The demand for 2×12 remains strong as LVLs remained challenged to secure.
- Fasteners were up 3.0 to 21.4 percent as high steel prices are impacting even the small items on jobsites.
- 4×4-8 treated post gave back 39.2 percent as fencing and decking sales softened in the big box stores.
- Drywall add 10 percent across the board and lead times have expanded by 2-3 weeks. Commercial and multi-family demand is pressuring the drywall sector to keep up.
- Moulding prices retreated 7.8 to 10.1 percent on increased imports from South America.
- Door pricing added 1 to 2 percent on higher manufacturing and transportation costs.
- PVC trim boards added 7.6 percent on increased raw material costs.
The inflationary play is not over in the building material markets and unfortunately, the country is heading into hurricane season which could negatively affect the markets more if the predictions for a bad season are correct.
Builders should be very cautious about lowering pricing and all should have escalation and time clauses in their contracts for custom jobs. These markets remain very volatile and unsettled, and there is no clarity of what is going to happen. The unexpected in the next few months could be the problem.
The interest rate increases could slow the markets some, but in Florida, according to the Florida Realtors, 33.5 percent of all homes sold were done via cash. If cash starts flooding out of the declining stock market and crypto world, a great place to invest is real estate and housing. Keep an eye on where money flows as this could actually heat up the sector more.
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. To sign up for the Whole House Commodity Index and other free market reports click the button below.