October 2020 Whole House Commodity Index

The RoMac Building Supply Whole House Commodity Index (Index) for mid-October 2020 dropped 1.3 percent to $41,852 from the prior month. The Wood Commodity markets are in a hangover from the huge price runup party they enjoyed over the summer. Just like a real party, there are some who do not want to leave, and they feel the party is just getting started while most people are tired and just want it to end. This lingering effect and unevenness in the market will probably need more than 30 days to shake out as dealers were forced to buy higher priced loads of lumber that are being delivered in a dropping market.

For those who have been reading this Index for the last 15 years, there is a statement in the next-to-last paragraph which reads, “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.” The reason this statement is included in the Index is that in the real-world commodities are ordered and shipped after the market rises or falls. This report is a good indicator of where pricing is heading over the next 30 days or so.

For example, truss prices in this month’s Index were up 20.5 percent as record high priced 2×4 pine hit the manufacturing part of the business. However, for the month 2×4 pine pricing dropped 1.3 percent. Although builders will see unevenness as the markets settle down, they should be patient because just as the markets rose most builders did not see the full impact until replacement lumber hit dealer yards.

The other notable price movers in the Index for the month were:

  • CDX pine plywood dropped 30.3 percent; however, OSB sheathing was flat (no decrease). That is one of the most surprising parts of this update and it is hard to foresee that OSB can hang on to these higher prices much longer.
  • 2×6 pine was down 20.3 percent while 2×12 pine gave back 44.1 percent.
  • 2×4-92 5/8 studs were down 15.0 percent, 2×4 dimensional dropped 18.7 percent, and 2×6 spruce edged down 20.3 percent.
  • 4×4-8 treated posts were down 40.8 percent and 2×4 treated pine was down 1.4 percent.
  • Foundation wire mesh was up 3.7 percent while 5/8” rebar retreated 2.9 percent. It was a mixed bag for foundation metal.
  • Bag mortar mix added 7.9 percent on a manufacturer’s increase.

Most other items in the building material sector are waiting for clarity regarding demand as issues associated with COVID-19 begin to accelerate.

The November lumber futures are down and in the last few days rebounded 3.1 percent to $543.95. However, there seems to be no indication that a runup in material is likely in the next few months.

OSB manufacturers are desperately trying to hold onto their price increases citing manufacturing delays and material issues due to COVID-19. The market support, because of lowering CDX pricing, is eroding quickly and demand will soon take the driver’s seat in the market.

With a potential second wave of COVID-19 coupled with the chaos from the presidential election, it is very difficult to envision a price run in the fourth quarter. Managing inventories and expectations will be the biggest challenge. Builders should be careful about dropping bid pricing through the floor and be mindful that price increases may need to stay in effect for a few months longer as the market shakes off its hangover.

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 this information via email, contact Rebecca Ballash through our contact page. For great videos and Don’s weekly column, go to the Around The House site to subscribe to our YouTube channel and weekly updates.