September 2022 Lumber & Commodity Report
By Don Magruder
The RoMac Building Supply Wood Commodity Index (Index) for September dropped 10.7 percent as interest rates continue to weigh down the overall national housing market and fears of a robust hurricane season wane. While it appears this morning a national rail strike may have been averted by the Biden administration, the hurricane season element remains in place as the tropics are just starting to juice up. However, with the current expectations for future rate increases, a hurricane striking the United States should just have minimal impact in the short term.
The dimensional portion of the Index dropped 12.5 percent to $549.91 per thousand as weakness manifested itself through all sectors. #2 spruce was down $70 to $90 per thousand on lower housing demands while 2×12 pine gave back $100 to $120 per thousand as LVLs became more prevalent. Treated 2×4 pine relaxed downward by $120 as demand for treated products slowed at summer’s end. While housing activity remains good in Florida, the interest rate increases are starting to affect demand in other areas of the country.
The sheathing portion of the Index fell 9.0 percent to $472.72 per thousand as both CDX Pine plywood dropped $40 to $50 dollars per thousand and OSB sheathing across the sizes dropped $50 per thousand. This is one area where volatility could pop up suddenly if there are hurricane threats to the United States as inventories at ground level are low, according to most suppliers.
Another interest rate increase by the Federal Reserve is a forgone conclusion based on recent inflation reports and this will only weigh demand down further. However, the fundamental remains the same. There is a lack of housing in Florida and many parts of America, and once homebuyers accept the days of low mortgage rates have ended, many may soon be motivated to buy before rates go up further. The new normal in interest rates is similar to the historical norms. Like anything, as time passes, homebuyers will return as most are impatient when it comes to their housing dreams.
One last point. Labor availability and higher wages continue to build inflation in the supply sector as much of the manufacturing is very labor intensive. Unless there is a full capitulation in wages and employment, drops in commodity pricing will be offset by those labor costs as well as continued cost issues in logistics.
Given there is little chance for a quick bounce in housing demand, other than hurricane volatility or unexpected curtailments or logistic issues, pricing should trade in a narrow range for the next month or so which will provide some stability for builders.
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.