By Don Magruder
The RoMac Building Supply Wood Commodity Index for January 2024 increased 3.5 percent to $464.13 per thousand, and this marks the third consecutive month of increases despite the holidays in the last few weeks, and the very cold weather gripping much of the nation. Most housing experts believe the industry is poised for better sales and activity in 2024 based on forecasted stabilization, the declines in interest rates by the Federal Reserve, and the pent-up demand of the last two years when many homeowners were house-locked due to high attrition in prices and much higher interest rates. These price increases in January could be a precursor of the 2024 pricing trajectory.
One important factor all builders should consider when thinking about bidding projects in the spring and summer is where this market was one year ago. Last January, this Wood Commodity Index was 34.8 percent lower than today with OSB pricing almost $5 per sheet lower and 2x4- 92 5/8 wall studs 60 cents a board cheaper than a year ago. Mill curtailments and closures, along with thin on-ground inventories are making for a volatile situation.
The Lumber portion of this month’s Index increased 6.5 percent to $461.14 per thousand with all items costing more this month versus last month. Studs were up 2.0 to 8.4 percent depending on width and length, and dimensional 2x4 spruce was up 2.8 to 12.8 percent depending on length while 2x6 spruce increased 11.1 to 14.5 percent. Curtailed shipments from Canada will be an issue in the spring. Pine lumber was up with 2x4 adding nearly 4 percent and 2x12 pine clawing back 6.2 to 13.0 increases. Once again, the time of year and weather should not have been conducive to these types of increases in earlier times.
The Sheathing portion of the Index was also up but somewhat mixed. OSB sheathing added $20 per thousand in the last 30 days while CDX pine plywood was flat. It does appear after the winter weather breaks in a few weeks, these markets could be poised to increase as builders start preparing for a better 2024.
Once the weather breaks and builders start garnering more enthusiasm for a better 2024 with lower mortgage rates, I expect the markets to become more volatile- especially in mid-spring. The wood commodity markets are setting up for higher pricing as demand should improve and the costs being incurred by manufacturers are not abating. Labor rates, equipment costs, maintenance costs, insurance costs, and the cost for new facilities continue to escalate, and most manufacturers will have little incentive to lower pricing.
Builders should protect themselves this year with a price escalation clause in their contracts and use pricing models that include some volatility factor for historical spring and summer runups in pricing. Pricing could be a lot higher in late spring and early summer- protect yourself today.
The RoMac Wood Commodity Index is a weighted lumber and sheathing composite based on usage in Central Florida. By using wholesale pricing, the Index is a good indicator of the pricing direction for the next 30 days.
Don Magruder is the Chief Executive Officer of RoMac Building Supply in Central Florida, he is a former president of the Southeast Mississippi Home Builders Association and a past Associate Vice President of the Home Builders Association of Lake County.