April 2013 Whole House Commodity

April 2013 Whole House Graph


by Don Magruder, CEO of RoMac Building Supply

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) continued a four-month string of price increases in April despite some cracks developing in some lumber dimensions. In mid-April 2013 the Index priced out at $30,023.64, which is a record high and up 2.6% from the prior month.

To put April’s price into context here are four of the most notable facts:

  • The Index has increased 8.9% since the end of 2012 with pricing going up each month in 2013.
  • From last April, the Index has increased 10.7%, which translates into a significant rate of inflation to build a home.
  • Prior to this year, the record high was October 2005, a month after Hurricane Katrina had decimated New Orleans and in the midst of the housing boom. This month’s Index is 4.6% higher than October 2005.
  • Since 2007, prices in the Index have always increased between the months of April and May. This does not bode well for a drop in price next month.

The market continues to have major influential factors, such as hail storms in the south, stronger housing starts, and limited supply as a result of unconfident manufacturers who are unwilling to take a chance in the current political environment.

  • For the most part, there was not a massive price increase in all areas. Some prices dropped; however, on a few of the big use items the prices soared, which is why the Index increased so much this month. Listed below are some of the details:
  • Foundation wire mesh increased 2.2% while rebar (for the most part) remained flat.
  • CDX pine plywood soared 12.5% on limited available production. The full effect of the closure of the Georgia-Pacific Hawthorne, Florida mill is really being felt right now. We have been told by experts in the market that the mill will not reopen due to excessive government requirements. No easy solutions to the CDX supply issue are evident at this time.
  • Oddly, OSB sheathing dropped 2.4% as production increased and word of new production being added soothed the markets.
  • The stud market has been on fire. 2×4-92 5/8 SPF studs increased 11.8% on high demand; however, dimensional 2×4 spruce dropped 3.7% while 2×6 spruce gave up 1.4%. It is odd that studs did not follow the trend of the entire species.
  • Pine dimensional lumber was down with 2×4 dropping 4.8%, 2×6 giving up 4.1%, and wide width pines trying to hold onto gains only slightly down 1.4%.
  • Truss prices increased 6.5% as truss manufacturing facilities have finally worked through most of their lower cost pine inventory.
  • 4×4-8 treated posts gave up 2.9% as mills searched for buyers.
  • The first round of shingle price increases took place in the last 30 days and it appears these new prices are sticking. Strip 25-year shingles increased 2.7% while 35-year architectural shingles surged 5.0% in price. More shingle price increases are scheduled in the next few months. With all of the heavy storms in the south, expect those price increases to also stick.
  • Moulding prices edged slightly higher on increased costs.
  • Vinyl siding increased 2.7% on higher manufacturing and fuel costs.

Notably, some cracks have developed in this four-month price run; however, at this time it is difficult to ascertain if these cracks will foretell a full-fledged market correction. The historical increases that occur between April and May, plus the storms in the south, and the accelerated reconstruction efforts in the Hurricane Sandy area because of warmer weather will probably keep pricing firm.

There seems to be a consensus that high pricing is beginning to affect demand as prospective buyers are putting projects on hold. Satisfactory appraisals are still very tough to acquire by many new home buyers, so a 10.7% year-to-year increase may be too much–time will tell. My recommendation is that builders should limit the time period for which a bid price is good. Times like these are the reason why you should include a price escalation clause in your contract.

If you would like a copy of the price escalation clause (which is linked to this Index) for your contract please contact Rebecca Ballash at rebecca.ballash@romaclumber.com.

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.