Tag Archive: whole house commodity

  1. February 2020 Whole House Commodity Index

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    February 2020 Whole House Commodity Index

    February 2020 Whole House Commodity Index

    By Don Magruder

    The RoMac Building Supply Whole House Commodity Index (Index) for February 2020 surged 2.8 percent to $33,800, which is just under the price for March 2019; the high-water mark for the year.  Last month in this report, I said, “My forecast for 2020 is inflation.” I also argued that sagging wood commodity prices were masking the overall inflation in other sectors of building materials such as doors, windows, and other building components.  This month’s Index proves that thesis to be correct, as inflation in wood commodities and price and freight increases in other products has dumped a hefty increase on builders. 

    Despite better housing numbers at year-end, the activity remains historically low based on the population increase.  Also, will this market have legs or do these prices retreat because of the mild winter? Unless there is sustained activity in housing to include late spring and early summer, the pricing increases may be more of a result of a mild winter and early building season up north. 

    The following are the notable price movers on the Index:

    • Foundation wire mesh was up 5.1 percent on higher import pricing and shrinking availability of low-cost steel. 
    • Pine CDX was up 13.3 percent while OSB sheathing was up a whopping 37.0 percent or plus $2.50 per sheet — huge increases for a non-hurricane month.
    • Pine dimensional lumber has been mixed.  2x4s were down 5.7 percent and 2x6s were down 4.6 percent.  Wide width 2×12 was up 14.0 percent on flooding rains in the south, limiting the harvesting of larger pine stumpage. 
    • 2×4 spruce studs were up 11.2 percent and concerns over a rail strike in Canada is questioning the availability of spruce, as railcar deliveries could be late. 
    • 2×4 dimensional spruce was up 5.1 percent and 2×6 was up 7.9 percent.  Delivery concerns could impact pricing more.
    • Treated 4×4 posts were up 2.8 percent and treated pine 2x4s posted a 3.4 percent decline.
    • Lower pine 2×4 prices pushed truss pricing down 1.7 percent.
    • Drywall added almost 2 percent on a soft yearly increase.  Questions remain if that increase can stick.
    • Moulding prices soared plus 7 percent as concerns over the coronavirus in China limiting shipments and possible tariffs on Brazil wood. 
    • Masonite implemented a 25 percent increase on interior door slabs, which resulted in increases in door unit pricing from 10.2 percent to 23.5 percent for bifold units.  
    • A yearly 5 percent increase on windows was implemented the first of
      February.

    This is a long list of price increases and it flows completely in all aspects of the home except for concrete, which remained steady.  Built into these increases were freight charge increases, as trucking labor continues to soar. Concrete pricing will go up at some point soon due to trucking — you can bet on that.

    Here are some takeaways from this month’s Index.

    • Inflation is here because companies are to the point they must increase pricing to cover costs.  The deflation of 2018 has been wiped out this month and despite the ups or downs of the housing market, there will be inflation. 
    • Continued trade issues will continue to roil markets.  Steel, moulding, and imported plywood will be targets this year.
    • Finally, the coronavirus in China is creating disruptions in moulding production and other components in the building supply industry.  If this situation continues and grows worse, there could be shortages in import items like cabinets, fixtures, plumbing parts, mouldings, etc. 

    Builders should include a price protection clause in their contracts and they should be aware of lead times before ordering products.  It is imperative that product decisions be made earlier in the process and selections are streamlined. 

    Finally, on the coronavirus, the effect on the United States housing market thus far could only be some supply disruptions.  An outbreak of the virus in America would be devastating for the housing industry, especially Florida, which relies so much on tourism, cruise ships, and winter residents.  It appears these thoughts are starting to find a home in the back of the minds of many in the construction industry.

    The point is simple — this month’s increases could quickly change if the virus is deemed a real threat to Americans.  Builders should closely monitor developments.

    Don Magruder is the Chief Executive Officer of RoMac Building Supply in Central Florida. Go to romacfl.com to sign-up for the Index and other free market reports. To sign-up for this information via email, contact Rebecca Ballash at rebecca.ballash@romacfl.com. For great videos and Don’s weekly column, go to AroundTheHouse.Tv to subscribe to our YouTube channel and weekly updates.

  2. January 2020 Whole House Commodity Index

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    January 2020 Whole House GraphJanuary 2020 Whole House Commodity Index

    By Don Magruder

    The RoMac Building Supply Whole House Commodity Index (Index) for January 2020 dropped 0.3 percent to $32,889.29, which is within $2.00 of last January’s Index. This month’s Index is almost exactly where it started last year. Wow! That is a lot of gyration without much progress.

    It also tells a story of the malaise in housing nationally. The wood commodity markets were a tough place to make a living last year and most sectors in the construction supply chain struggled to increase pricing. Although increased labor and fixed costs were not passed along to builders last year, it appears that will change in 2020. Based on the huge wave of building material price increases being announced for the first quarter, coupled with the efforts by wood commodity mills and manufacturers to control supply, it appears 2020 will have inflation.

    The notable price movers in this month’s Index are:

    • Foundation wire mesh dropped 4.8 percent.
    • CDX pine plywood dropped 4.8 percent while OSB sheathing gave back 4.4 percent.
    • Pine 2×4 dimensional lumber increased 2.3 percent while 2×6 pine surged 9.0 percent and 2×12 pine added 7.9 percent.
    • Dimensional 2×4 and 2×6 spruce increased almost 2.0 percent while studs added almost 3.0 percent.
    • Trusses dropped 3.7 percent on lower pricing on specialty truss pine.
    • Drywall added $10.00 to $15.00 per thousand, or an increase of 4.8 to 5.8 percent, on announced yearly increases.
    • Exterior door pricing added 6.0 to 7.2 percent due to higher pricing for door slabs and jambs.

    The increases in many basic building material items are being masked in January because of the price declines in sheathings and trusses. It is a safe bet these items, along with others, will increase over the next 30 days. As a result, February’s Index should be higher.

    Interior Masonite Doors are going up 25.0 percent on door slabs in February and most window manufacturers are adding 5.0 to 7.0 percent as well. There is a plethora of increases poised over the next 60 days, which will increase the cost of construction. There appears to be an unwillingness by manufacturers to cave on these increases. The harsh margins in 2019 may force manufacturers to either hold a hard line on increases or curtail production.

    I wrote the following in the January 2019 Whole House Commodity Index:

    I believe spring will usher in higher pricing like it does historically; however, I do not see the levels like those from 2018. If housing demand does not improve and the chaos in Washington, D.C. subside, expect the economy to sputter, which could lead to more downward pressure on pricing.

    My projection occurred—downward pressure in the market resulted in no net increase for the year.

    My forecast for 2020 is inflation. It appears manufacturers will have to choose between increasing prices or curtailing production. Plus, with the current negative world trade situation with America and the rest of the world, there are few options for lower-priced imported goods.

    With 2020 being an election year, builders should prepare for higher pricing and continued chaos in the markets. This is the year wherein builders should have a viable Price Adjustment Clause in their contracts. RoMac Building Supply has developed one based on this Index. To obtain a copy of the Price Adjustment Clause, email Rebecca Ballash at rebecca.ballash@romacfl.com.
    Builders should review their projects scheduled for later in the spring and build in inflation to cover cost increases. They should also prepare for longer lead times on specialty products. The better you plan the less problems you will have.

    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. Go to romacfl.com to sign-up for the Index and other free market reports. To sign-up for this information via email, contact Rebecca Ballash at rebecca.ballash@romacfl.com. For great videos and Don’s weekly column, go to AroundTheHouse.Tv to subscribe to our YouTube channel and weekly updates.