Whole House Commodity 3/18/13
The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for March 15, 2013 increased 1.5% to $29,263.31 from the prior month. This is the second consecutive month in which a new record high price for the Index has been hit. Since mid-December 2012, this is the third consecutive monthly increase with the total Index adding 6.2% in cost. It is very apparent that strained supply due to supply chain destruction and the desperate need by manufacturers and suppliers to turn profitable are driving these record high costs.
The cost increase in this month’s Index was a mixed bag of price changes and not just from lumber related products. In March, the Index was pushed higher on increased concrete and block pricing coupled with increases in other related building material areas.
The following are the cost changes, which affected the Index:
- Concrete increased 8.1% while blocks added 4.3% and 6.2%. This is probably the first of several price increases for the next year as concrete companies struggle with profitability due to increased fuel costs and great restrictions on raw supply.
- CDX pine plywood increased 3.3% while OSB sheathing gave back 1.6%.
- Pine lumber pricing was really mixed. Narrow width 2x4s decreased 2.9% while wider width 2x6s jumped 3.0% and 2x12s shot up 11.4%.
- Consequently, truss pricing was flat-to-down slightly depending on the width requirements.
- Spruce studs increased 8.1% while 2×4 Random Lengths spruce eased up 2.1%. 2×6 spruce gave back 7.2% of its cost.
- 3/4” insulated sheathing board increased 11.2% on higher production and fuel costs.
- 4×4 treated posts were up 7.9% on higher lumber costs.
- The engineered beam used in our home increased 7.9% on higher lumber costs.
- Moisture backing board increased 8.3%.
- PVC trim boards increased 13.3% as manufacturers are pinched with higher energy costs.
The high costs in the market are beginning to have some real impacts on the ground in two ways:
- Softness in sales is starting to permeate the market, as projects are being cancelled because the price has gone too high. Prior to this run in prices, good appraisals were very difficult to obtain; now, these high prices are limiting the ability of some to secure financing.
- Most dealers and suppliers believe the market is too high, and have gone to the sidelines. This has led to “hand-to-mouth” buying, which does not allow a build-up in inventory. There is a belief the market will correct itself and no one wants to be stuck with a large supply of high-priced inventory.
Governmental issues are also affecting this market in many ways. Due to the impact of Obamacare and the general uncertainty in the market, companies are very slow to add production. New regulations on employee layoff notifications have spooked companies to a point in which they are trying to make do with what they have. This slowness to add production is keeping the supply chain in shambles.
Over the next month, expect higher costs in shingles, metal products and mouldings, as those supply chains remain very tight and fuel prices continue to increase. Lumber related products are near record levels; and, if softness is beginning to enter the marketplace there could be a price adjustment in the short future. The best advice I can give any builder is to make quotes good for a limited time period and put a price escalation clause in all contracts.
It is very apparent that despite inflation and improved business, many builders and suppliers lost a lot of money during these price runs because they did not implement the price protection tools they needed. Now is the time to be smart and make money.
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 www.romaclumber.com to sign-up for the Index and other free market reports. To sign-up for this information via email, contact Rebecca Ballash at firstname.lastname@example.org.