November 2019 RoMac Whole House Commodity Index

November 2019 Whole House Commodity Index

 

November 2019 RoMac Whole House Commodity Index

by Don Magruder, CEO RoMac Building Supply

Over the last 30 days, OSB and spruce mills made another pricing stand with new rounds of production curtailments, which moved pricing upward. The RoMac Building Supply Whole House Commodity Index (“Index”) increased 0.6 percent to $33,144, primarily on these companies reducing production, which in and of itself is not a good sign. Any time prices are manipulated upward by reducing the supply equation, that is not an encouraging sign for the housing market heading into winter. For all the price gyrations the construction market has seen in 2019, the bottom line is that November’s pricing in the Index is only $35 more than it started out with in January. That one fact is probably the most indicative sign of malaise for the new home construction market.

The following are the notable price movers in the Index over the last 30 days:

  • OSB sheathing was up 33.2% on significant mill closures and curtailments while CDX pine plywood only added 2.8%. It appears the legs may be running out of steam on these increases as winter snow starts falling.
  • Dimensional spruce was up 4.6% to 6.0% and these increases are facing real challenges from European import spruce.
  • Pine dimensional lumber traded in a tight window of a 0.9 percent increase for 2×6-16, to 2.4 percent down for 2×12. Flat would be the best word to describe pine.
  • A less than 2.0 percent market adjustment in drywall pushed pricing a tad lower.

It appears most vendors are lining up for increases after the first of the year and that should be the worry. Masonite interior doors announced a tentative 25 percent increase in door slabs after the first of the year and most other door and window companies are announcing increases ranging from 4 to 7 percent. Just like the OSB manufacturers, many manufacturers are being squeezed by margins, fixed costs, and labor to a point they must raise pricing or shut down. A lot also has to do with high debt loads at these companies. Builders should prepare for a possible tsunami of price increases the first quarter of 2020.

Having price escalation and tariff increase clauses in your contracts is a great idea. Also, talk to your suppliers about potential increases and include them in your quotes for future projects.

There is little doubt—the price of business will be going up after we ring in New Year.

From our family to yours, Happy Thanksgiving!

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. For great videos and Don’s weekly column, go to AroundTheHouse.Tv to subscribe to our YouTube channel and weekly updates.