August 2014 Whole House Commodity Index
WHOLE HOUSE COMMODITY INDEX – August 2014
by Don Magruder, CEO of RoMac Building Supply
The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for August took a dip on the rollercoaster ride, as it dropped 0.7% to $30,211.46. Weakness in the housing market set the tone as new homes sales continue to be unimpressive, with most areas behind new homes sales in 2013. Recent reports from Freddie Mac, and field reports from representatives in manufacturing, suggest some metro markets have seen an improvement in the housing market; however, once you step outside those specific markets housing is down as much as 30%. One representative said, “Not only is business not getting better in rural areas; it’s getting worse.”
The markets are searching for any impetus to move forward and find solid ground. Instead, they seem to be reacting to special events, like the Swanson Mill fire in Springfield, Oregon (on July 17, 2014, the mill was completely destroyed by fire), a major supplier of fir plywood and veneer out west.
You wouldn’t think it would have that much of an effect on pricing in Florida; but it has. Because so many mills have closed during the Great Recession, CDX pine plywood is now being shipped out west. The price of 5/8 CDX rose 7.3% (or $1.28 per sheet). Its sister component, OSB sheathing, dropped 5.1% due to spotty demand. The American building supply chain has gotten so fragile that a mill fire in Oregon can drive up pricing in Florida by 7.3%.
Over the last two years, the price increase train has been in roofing and drywall products. However, over the last month, special pricing deals have emerged because manufacturers are concerned about keeping plants functioning. Roofing deals just before hurricane season are rare, but this year manufacturers are looking for business.
What does that really say about the market? Suppliers, mills, and manufacturers grow increasingly concerned about the stability of the housing market. It is becoming quite clear that the “rose-colored glasses” forecast, of just six months ago, is not happening.
Here are the price movers from mid-July to mid-August.
- Foundation wire mesh was down 0.3% while rebar increased 1.4%. Manufacturers are trying everything to lift their market.
- CDX pine is up 7.3% due to a mill fire while OSB sheathing dropped 5.1% due to demand.
- Tighter supply and increased exports pushed up dimensional lumber. Spruce was up about 1%; pine narrow widths increased 12.4%; and 2×6 incurred a 17.5% increase, while 2×12 pine gave back almost 4%.
- Studs sprinted down almost 4%.
- On average, drywall pricing adjusted 4% as mills searched for orders.
- Special buys on casing eased prices down 6%.
Pine plywood and dimensional lumber prevented the Index from dropping much more. The strength of these price increases could be temporary, once emotion leaves the marketplace.
One important factor to keep in mind is that the country is in the midst of hurricane season. If one mill fire out west could drive the market up this much in one month, imagine the effect a strike or a serious hurricane threat could have. For the next couple of months, builders should protect themselves on long-term quotes, as the threat of a sudden spike in markets exists primarily, as a result of a supply chain that cannot seem to abide any bumps in the road.
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 firstname.lastname@example.org.