October 2023 Whole House Commodity Report
By Don Magruder
The RoMac Building Supply Whole House Commodity Index for mid-October 2023 was flat as compared to last month, losing less than 1/10th of one percent to $51,207, and since the first of 2023, the Index is up 4.9 percent and flat with October 2022. This is somewhat surprising given the price capitulation the OSB markets have absorbed the first two weeks of October as well as the general weakening of wood commodities.
Despite the unimpressive housing starts and higher interest rates, pricing in building materials and construction services has not collapsed for several reasons, and this month’s Index would suggest these factors are in play. First, higher labor costs and the continued struggle for qualified labor, especially in Florida with its new immigration law which is slowing production times. Next, the high fixed cost for insurance, property, and fixtures which once again are exacerbated in Florida due to out-of-control costs. Finally, the high price of oil is keeping logistic pricing very high, and with the current turmoil in the Mideast, no one is expecting quick relief in fuel pricing.
No doubt, with the inflation in labor, fixed costs, and fuel, this is not your typical building material market in which the raw cost of commodities will determine the primary costs of a construction project.
Here are the significant price movers since last month.
Foundation wire mesh dropped 3.6 percent on slowing demand.
CDX pine plywood increased 4.3 percent on tighter supply while OSB sheathing finally capitulated to slower demand and oversupply by dropping 37.3 percent.
2x4 #2 pine was down 3.2 percent while 2x6 added 6.9 percent and the decline in 2x12 persisted and bottomed out at 14.3 percent.
Dimensional spruce declined with 2x4s dropping 7.1 percent and 2x6 spruce giving back 22.6 percent. 2x4-92 5/8 studs were down only 1.4 percent.
2x4 treated pine was down .1 percent, and 4x4 treated pine post dropped 2.1 percent.
Truss pricing was up 4.8 percent as pricing for higher grade truss lumber increased and was in shorter supply than #2 pricing and increased labor costs for production.
Door pricing was up .6 to 3.5 percent on higher production labor costs.
If oil prices and labor prices continue to escalate, builders should expect late in the 4th quarter or the first of 2024, a general price increase in most building materials even if demand slows. Higher living costs are forcing workers to find jobs that pay more, and the total lack of labor in the country, especially in Florida will keep skilled workers in the driver’s seat regarding wages.
On the other hand, if construction and housing activity were to pick up in the 4th quarter or the first of the year as many believe due to extremely low housing inventories, then builders could see significant inflation and volatility. For builders to see a meaningful cost decline in construction, there must be an increase in unemployment, a decline in wages, and capitulation in the insurance and real estate markets which is unlikely in Florida. Builders should expect to pay more in the future.
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.