October 2018 Whole House Commodity Index

October 2018 Whole House Graph


by Don Magruder, CEO of RoMac Building Supply

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) declined 1.7 percent to $34,317.34, which wiped off most of the previous month’s gains fueled by Hurricane Florence, which struck the Carolinas. The most perplexing aspect of this month’s Index is the lack of impact to pricing that Hurricane Michael had on the commodity markets. Typically, a major Category 4 hurricane striking anywhere in Florida pushes sheathing prices upward. However, Hurricane Michael did not. In fact, prices dropped. Although Hurricane Michael entered one of the least populated parts of the state of Florida, its lack of impact is probably more about overall market demand than the devastation of the hurricane.

Evidence is mounting that the construction demand equation is eroding, and it could occur faster than many first believed. According to Dodge Data and Analytics, construction activity dropped by nine percent in August matching a nine percent drop in July—these are huge declines. There was a 19 percent decline in non-residential construction and a seven percent decline in residential construction. The huge decline in commercial building activity is very concerning.

While a hurricane can create panic buying, the result is that the activity lost because of the hurricane’s disruption can outweigh any business gained from damage. Declining commodity markets the same week a major hurricane hits the United States is not a good sign for market activity.

The following are the major price movers in the Index since last month:

  • Rebar was down 1.8 percent on supply and demand issues.
  • CDX pine dropped 9.4 percent and OSB sheathing gave back 27.3 percent. These drops are due to oversupply and weakening demand.
  • 2×4 pine was up 2.3 percent. 2×4 yellow pine is the only wood commodity item that increased in price. The treaters and truss plants are driving this demand.
  • 2×6 pine dropped 12.6 percent while wide-width 2×12 pine declined 9.8 percent.
  • 2×4 and 2×6 spruce were down 15.0 percent while 2×4- 92 5/8” studs retreated 9.7 percent.
  • Truss pricing was up 2.5 percent on increased pine and labor costs.
  • 4×4-8 treated posts gave back 6.1 percent.
  • Roofing shingles declined 2.6 percent on weaker demand.
  • Exterior doors were up almost 4.5 percent on increased costs driven by tariff concerns with pledges for more increases in the fourth quarter.
  • Vinyl soffit was up 8.2 percent on increased costs to manufacture.

While builders should be happy to see the commodity and building material pricing markets decline, they should be concerned with the overall health of the construction market. Here is my reality check on actual demand—in 39 years in this industry, I have never seen CDX plywood and OSB sheathing prices decline the same week a Category 4 hurricane threatened and struck anywhere in the United States. This could be an indication that housing and commercial construction demand is eroding faster and worse than most realize—I hope not.

Commercial and residential builders should be slow to accept conventional wisdom and believe false excuses for losing jobs or customers cancelling projects. If you start seeing a lot of this, and especially if labor becomes a little more plentiful, builders should start preparing for a turndown. It is too early to say, and this could be an aberration, but builders should be wary. Let’s hope that both pricing and markets start showing more signs of activity.

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 www.romaclumber.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@romaclumber.com.