October 2022 Whole House Commodity Index
By Don Magruder
The RoMac Whole House Commodity Index (Index) for mid-October 2022 declined 4.0 percent to $51,240, which on the face is good news for builders and new homebuyers, but if you look inside the numbers there are real concerns. Foremost, the Index is 10.4 percent above last year’s October’s Index price, and that is with declines this year of 4 major wood commodity components.
Compared to last October, CDX pine plywood is down $5.28 per sheet, OSB sheathing is down $3.40 per sheet, Spruce Studs are down 4 cents per stud, 2×4-16 #2 spruce is down $1.06 per board, and 2×4-16 #2 pine is down $1.60 per board. With all these declines in major wood commodities, how can the Index pricing be up 10.4 percent this year.
The reason is the core inflation in other building materials to build the house has not declined. Here are the primary reasons:
- Labor shortages and costs continue to plague the construction supply chain sector. Wages have not declined and finding skilled workers who can increase productivity is a major problem.
- Because fuel costs and labor costs remain high, trucking and logistic prices continue to escalate.
- Manufacturing in the building material sector relies heavily on natural gas which is up 2 to 3 times in price versus last year.
- Escalating interest rates are increasing fixed costs on many in the building material sector, especially those companies that are highly leveraged.
As of October, there appears to be little to no relief in the core inflation factors that continue to create higher pricing at the center of most construction projects. On top of that, the country continues to have a fundamental housing shortage which will not collapse demand.
Over the last 30 days, even with the devastation of Hurricane Ian, wood commodity prices could not hold up, and that is a big story. The huge concern I see in the Index is the price of concrete. Again, this month, concrete increased by 1.6 percent, and it appears pricing of concrete is being driven due to the core inflation issues as previously discussed, as well as demand as the American Infrastructure plan commences. A billion dollars of investments in roads and government projects could continue to pressure concrete pricing and availability for an extended period. Builders, especially in Florida, who lean toward masonry construction may have to move to lower cost wood construction as block and concrete pricing pushes huge gaps in home pricing between wood and masonry construction.
Here are the price movers on the Index in the last 30 days.
- Concrete was up 1.2 percent on tight demand and higher costs.
- Rebar was up 2.3 percent which indicates the demand equation for the increased infrastructure projects maybe starting. Wire mesh declined 9.7 percent.
- CDX pine plywood is down 18.4 percent while OSB sheathing was flat. Neither panel product moved during or after Hurricane Ian which is a first in 20 years. OSB does remain in tighter supply.
- 2×4-16 #2 yellow pine declined 19.0 percent with 2×6-16 #2 pine increasing 8.3 percent while 2×12-16 #2 pine dropped 8.7 percent on better LVL availability. Pine is probably getting close to the bottom.
- Spruce studs dropped 13.5 percent while dimensional 2×4 #2 spruce declined 6.6 percent but 2×6 #2 spruce added 1.5 percent.
- 2×4 treated gave back 14.9 percent while 4×4 treated declined 8.6 percent.
All other pricing remains firm from last month.
Builders should stay focused on year vs year numbers and not get caught looking at the candy drops in wood commodity because the core numbers will truly reflect the real housing cost numbers. At this point, with no drastic drops in labor or energy costs, expect core costs to remain elevated and as higher interest rates affect suppliers and manufacturers in the supply chain, inflation could get worse. On the other hand, now that hurricane season is ending, supply chains for 2023 will probably not be disrupted as much as the last two years – but items will still be expensive.
This quarter and next year are shaping up, managing prices, and looking for different ways to create value.
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. For great videos and Don’s weekly column, go to www.AroundTheHouse.Tv to subscribe to our YouTube channel and weekly updates.
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