October 2013 Whole House Commodity Index

October 2013 Whole House Graph


by Don Magruder, CEO of RoMac Building Supply

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for October 2013 increased in price for the fourth month in a row after a 9.7% plunge from April’s all-time high.  In the last 30 days, the Index eased up 0.5% in price to $29,391.48.  Although the increase is modest, the pricing level remains very high.

Historical comparisons will put this October’s Index price into clear view:

  • This October’s Index price is 10.3% more than the same time in 2012.
  • Since the plunge in May, the Index has picked up 1.1% of the 9.7% previously lost.
  • This October’s Index price is the second highest in the history of the Index (the Index commenced in April of 2005).

Needless to say, prices have remained firm despite the uncertainty from Washington, D.C.

In total, the market is being pushed by supply rather than demand.  Housing starts and permits have been volatile, with each month seemingly showing a new direction.  Most suppliers and dealers, probably because of necessity, are not loading their wagons with inventory because cash remains king and the folks in Washington, D.C. have everyone spooked.

In my view, this is creating a needs-based market.  If you see how commodities are being priced, it is almost species and style specific–linked to availability.  For example, 8’ boards may be flat-to-down in price while more popular 16’ boards could sell for $20 per thousand premiums.

Each month, building supply manufacturers are searching for ways to increase price; however, a lackluster hurricane season coupled with volatile demand have forced some to pursue targeted pricing.  While many would like and probably need price increases, the market may not be able to stomach them.  There is a possibility more thinning of the herd could occur.

Here are some notable market movers over the last 30 days:

  • CDX pine plywood was up 4.9% and OSB sheathing followed with a 3.5% increase.
  • Spruce studs were up almost 3% while 2×4 dimensional spruce increased 7.2% followed by 2×6 spruce at 4.9%.
  • 2×4 narrow width dimensional pine was up 8.1%, and 2×12 wide width jumped 6.8%, but (in between) 2×6 pine decreased 2.4%.
  • Truss prices remained basically flat, adjusting down 0.7%.
  • Most rebar and foundation metal dropped 1.1% to 4.2% in price as shipments from Europe and Asia are oversupplying a softer than expected American new home market.

For many contractors, window supply remains a problem as manufacturers see the new energy code forcing most markets to vinyl products.  This coupled with plant closure is creating a real problem for contractors using aluminum windows.  Demand will determine how long this will continue to be a problem.

Trucking remains a big issue with the new Department of Transportation regulation on the number of hours a driver can be behind the wheel.  With increased demand, timely delivery of special and custom products could become an issue.  So, builders should figure longer lead times on these items.  There could be spotty stock inventory issues if suppliers keep their inventories at thin levels.

What does all of this mean?  The upheaval in Washington, D.C., and its uncertainty, plus the imposition of Obamacare have a lot of people sitting on their hands.  The industry is not preparing for 2014 as they should and God in heaven only knows what business will really be like.

Geez, instead of making five-year plans many can hardly make a six-month plan.  This will leave mills and manufacturers carefully managing supply to prevent a price collapse.  While there will be intermediate price declines over the next few months, don’t expect a full retreat because most cannot afford them.

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.