By Don Magruder
The May 2024 RoMac Building Supply Whole House Commodity Index decreased 2.0 percent to $50,227 in the last 30 days as wood commodities capitulated to slower demand and the housing market, which continues to be uncertain due to sticky inflation and higher mortgage rates.
Where many builders get caught looking at pricing is that they will see heavier declines in wood commodities in a month like May and expect more of a drop in their total home costs, but that is not the case. First, you must understand, that exactly 25% of materials on our commodity index are affected by the wood commodity markets, which have seen stout declines over the last 30 days. However higher inflation in other building material sectors, due to increased fixed costs, raw material costs, and labor, remains a real issue. This would explain that despite a significant decline in wood pricing, the Index is still 1.0 percent higher than in May of 2023.
One dimension of demand that is hurting pricing is the shrinking square footage of homes. Many builders are reducing the price of their homes by using the same shrinkflation strategy used by our cereal companies. A home 15 to 20 percent smaller uses that much less in lumber and building supplies. Think about it.
The danger for builders is if a pop in demand were to happen due to a bad hurricane season or a robust increase in demand occurred due to dropping interest rates, dramatic increases in wood commodities would expose the overall inflation picture of other sectors in the building supply chain.
Here are the notable movers from last month.
Foundation wire mesh added 6.8 percent on a more balanced demand equation.
CDX pine plywood dropped 18.4 percent while OSB sheathing sank 29.8 percent. The mills finally capitulated despite recent shutdowns for maintenance.
Spruce studs were down 6.0 percent while dimensional spruce dropped 9.0 to 9.8 percent.
Pine dimensional lumber was down with 2x4s dropping 2.4 percent, 2x6s coming off 4.9 percent, and wide-width pine 2x12s giving back 10.9 percent.
Truss prices were down 6.5 percent on lower pine pricing.
Treated pine was down 1.9 percent while 4x4 treated dropped 4.3 percent.
Shingle pricing was up 2.0 to 3.2 percent on increasing demand due to weather problems in the country’s midsection.
Increased labor and raw materials costs added 7.0 percent to window pricing and new tariffs on Chinese imports could exacerbate this pricing in the coming months.
It is worth noting that increases in windows and shingles this month were covered up by the drops in the wood commodity markets, which at some point will reverse and the effects will be felt later. Builders need to note these increases in other areas to ensure they don’t get caught short later.
Finally, June 1st starts hurricane season and all the forecasts are bad. If these forecasts come to fruition, we could have a supply problem with higher prices in the fall. Builders, you really need to include Force Majeure clauses in your contracts for price escalations and delays. Prepare now.
The RoMac Building Supply 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 RoMac Building Supply in Central Florida.
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