August 2015 Whole House Commodity Index

WHOLE HOUSE COMMODITY INDEX – August 2015

by Don Magruder, CEO of RoMac Building Supply

In last month’s Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index), I cautioned about plunging commodity prices and lead times going out on vinyl windows. Over the last 30 days, the downturn in the worldwide commodity markets has pushed building commodities lower. The question for most in the industry remains, “Is this a blip or something much worse?”

As for vinyl windows, the lead times have gotten much worse with one major Florida manufacturer going out ten weeks. For the next several months, contractors must order windows earlier; and, more importantly, make sure there are not any order errors.

As of mid-August, the Index has plunged 1.0% to $29,836, as all wood commodities retreated because of lackluster demand. This month’s Index is at its lowest point since April 2014, and down 1.6% since the first of the year. While most builders celebrate lower pricing on building materials, my concern is that it is reflecting a downward trend in housing that cannot be ignored. If commodities continue to go downward over the next 30 days, expect significant revisions to the 2015 housing forecast.

The following are the notable price movers in the Index in the last 30 days:

CDX pine plywood dropped 1.8% while OSB sheathing retreated 2.6%. Over the last week, manufacturers were trying to rally pricing in an effort to stop the downward spiral. One week of increases does not represent a trend.
Yellow pine 2×4 dropped 7.0% with 2×12 pine dropping 7.3%. Oddly enough, 2×6 pine remained flat.
2×4 and 2×6 spruce retreated in price about 4.5% with studs giving back 9.1%.
Roof trusses dropped 2.5% on lower wood pricing.
Roofing shingles edged up 6.2%, but I am not real sure this is going to stick. Many manufacturers have pulled back their increases. This one could disappear in the next 30 days, especially if hurricane season remains quiet.
Wood commodities uniformly went down with only a couple of items staying flat. If oil continues to retreat and housing starts falter, expect the deflationary pressures to hit other product lines as manufacturers try to keep revenues flowing.

Hurricane season and the economy will determine what direction pricing will go over the next 30 days. Because of a strong El Niño in the Pacific and tumult in the world economy, I see little impetus for a rising market. This is the time of year where I caution builders to be mindful that pricing could quickly move up if we have a hurricane. With low inventories in the supply chain, it could really be bad this year.

Everyone should be careful on long-term quotes and include a price-escalation clause in their contracts. If you would like to have a sample clause linked to this Index, please contact Rebecca Ballash at Rebecca.Ballash@romaclumber.com

The Ro-Mac Lumber & Supply, Inc. 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