January 2013 Whole House Commodity

January 2013 Whole House Graph


by Don Magruder, CEO of RoMac Building Supply

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) has been monitoring the wholesale cost of the building materials to construct a 2,200 square foot home since April 2005. In almost seven years, the highest cost month was October 2005 in the immediate aftermath of Hurricane Katrina when the Index reached $28,692.71. Amazingly, in the first two weeks of January 2013, the Index reached its second highest level of $28,519.91, which is downright spooky.

Prices have gotten so high that many buyers fear a correction is around the corner; so, conversely, most are buying “hand to mouth” just what they need. This in itself is exacerbating the markets. In my view, pricing in this market has three options:

  • Continue to increase as mills and manufacturers continue to manipulate the supply side of the equation.
  • Firm and flatten out for a month, or so, as dealers and builders try to digest the new pricing in an effort to pass it along to consumers.
  • Collapse as the market pricing went up too high too fast for a market that cannot support it.

At this point in the housing cycle, it appears there is a greater downward risk in pricing than upward. Such huge increases in pricing will subdue building activity and it appears in some markets, especially metal, cracks are starting to develop in the upward motion.

Here are some interesting notes about this month’s Index as compared to last month and also last year.

  • Prices increased 3.5% on heavy lumber and OSB sheathing increases. Pine lumber was up in the 15% range; OSB sheathing added in the 20% range, depending on thickness; spruce dimensional was up 8.5%; and CDX pine plywood jumped 6.7%.
  • Trusses added nearly 4% in cost on higher lumber cost.
  • Many companies implemented $5 per thousand fuel charge increases as high diesel prices continue.
  • The much ballyhooed drywall increase for the first of the year and most items increased 17.4% to 20.6%. This is a huge amount, but the drywall manufacturers did get some bad news–a lawsuit alleging price fixing. Many contend this lawsuit could have real legs.
  • Insulation increased in the 5% neighborhood as these companies sought to share higher fuel and production costs.
  • Foundation rebar gave back 2.7% as it may be the first product to indicate a crack in the upward price movement.

For the Year (Price Comparison Since Last January):

  • Plastic 6mil foundation poly is up 9.5% while foundation wire is down 4.8% with foundation rebar retreating in price since last year 7.0%.
  • Masonry sand was up 9.3% primarily on higher fuel costs.
  • CDX pine plywood increased 12.9%.
  • OSB sheathing increased an astonishing 109.7%.       The cost is up more than $6.40 per sheet.
  • 2×4 pine is up 69.8%; 2×12 pine is up 43.4%; and 2×6 pine is up 58.5%. These are huge yearly increases.
  • 2×4-92 5/8 spruce studs are up 41.8%.
  • 2×4 spruce dimensional lumber is up 48.7% while 2×6 spruce lumber increased 50.2%.
  • Truss prices increased 21.1% since last January primarily on much higher pine prices.
  • Poly insulation board managed a 3.3% jump in price.
  • 3.5” thick insulation increased 22.1% in price while 9.5” insulation added 32.4% in price.
  • 30-year architectural shingles increased 8.5% since last year.
  • Roll roofing added 14.3%.
  • Drywall prices versus last year were up in the 15% range primarily from the increase which occurred this January.
  • Windows increased in price 14.3% while sliding glass doors added 11.6%.
  • Wood molding increased in the plus 8% range.
  • Door pricing added 1.8% to 7.7% depending on the style.
  • Garage doors increased 4.8% while openers added 3.3%.
  • More competitive pricing in cement siding resulted in a decrease of the plus 10% area.

Also keep in mind that roofing manufacturers have announced another 10% to 13% increase in February. In Central Florida, cement contractors are being told to expect a $5 per yard increase in concrete and 8-cents increase in blocks. Then there are the fuel surcharge increases–the price at the pump is showing more pain lately.

The price increases in all areas of the building supply chain have been so great over the last 12 months that if a builder or dealer did not pass them to their customers then their ability to be an ongoing concern could be in question. It is very possible in the next few months there could be more closures of builders and dealers as accountants break the bad news of the negative affects these huge price increases had on balance sheets.

What is the direction and what is the proper play? My view is the market is over baked and at these levels I don’t mind eating “hand to mouth”, because if the markets start losing their steam and start dropping, it will be like trying to float a brick in a pond.

The risk if these market cost levels are now the new normal is simple–shortages if housing starts to boom, or if there is a bad natural disaster. I must admit, this warm spring could bode very badly for a strong spring tornado season.

How does a builder quote a project? Builders must price with a price protection clause and measured time the price is good in the contract. Do not price jobs banking on a future drop in price later in the spring.

We are in uncharted territory. This high of pricing during this time of year with housing starts less than one million and no looming hurricane is something I have never seen before. This is a time to be cautious.

The Ro-Mac Lumber 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 Ro-Mac Lumber & Supply, Inc. 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@romaclumber.com.