Eye on Housing

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for July. Producer prices for finished goods were flat in July after rising 0.8% in June and 0.5% in May. Excluding food and energy, the core index continued its recent stability rising 0.1%. A 0.2% monthly decline in energy prices and flat food prices held the headline index flat despite the 0.1% increase in core prices.

PPIs for softwood lumber and OSB continued the descent that began earlier this year. Softwood lumber prices declined 2.3% from June to July, extending the decline from the recent April peak to 16.6%. However, softwood lumber prices are still 9.9% above prices from one year ago before the sharp run-up in late 2012 and early 2013.

OSB prices declined 12.2% in July, extending the decline from the March peak to 28.4%. OSB prices remain 48.8% above prices prior to the housing recovery that began in 2012.

Weekly indicators show wood prices rebounding somewhat in recent weeks, but the sharp declines remain largely intact. These declines are based on significant increases in productive capacity in the lumber and OSB industries which are likely to be added to rather than subtracted from as the housing recovery continues.

The PPI for gypsum dropped slightly in June and July. There have been some plant re-openings and reconfigurations in the industry but it remains to be seen whether recent declines are the beginning of a normalization of gypsum prices. Gypsum prices remain 37.3% above housing bust lows and 98.2% of housing boom peaks.

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for April. Overall, producer prices declined for a second month based on continuing declines in energy prices, but the sharp price increases for the building materials framing lumber and OSB may be nearing an end.

The PPI for finished goods declined 0.7% in April from March (seasonally adjusted) driven by a 2.5% decline in energy prices. Core prices (excluding food and energy) continued their modest pace, rising 0.1% in April. Declining food prices also contributed to the decline in overall producer prices.

The monthly PPIs for framing lumber and OSB increased from March to April, 3.2% and 6.5% respectively, but weekly price data from Random Lengths indicate that turning points during April may be the beginning of a reversal of the steep increases that have accompanied the housing market recovery. If sustained these declines should appear in the June release of the May data.

Indexing both the PPI and the Random Lengths framing lumber price to January 1995 shows that they move together closely, reflecting the same price dynamics, with the weekly data from Random Lengths showing a larger amplitude in the changes. Based on monthly prices the PPI indicates a 67% increase from the 2009 trough to April; the weekly data show a trough to April increase of 124% in lumber prices.

Price increases for OSB are even more dramatic. According to the PPI data OSB prices have increased 151% since bottoming out in the housing bust; the weekly Random Lengths data show a 206% increase.

A break in prices would be a welcome relief for builders. With house prices less than 10% above their housing bust lows, the impact of these rising input costs has presented a significant challenge for builders during the recovery.