Eye On Housing
Prices paid for goods used in residential construction ex-energy decreased 0.6% in November (not seasonally adjusted) according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. The index for inputs to residential construction, including food and energy also decreased over the month, albeit by slightly less (-0.5%). Neither measure had fallen since pandemic-driven price declines began to appear en masse in April’s BLS data. The core index for building materials is up 3.9% year-to-date (YTD).
A sharp decrease in prices paid for softwood lumber (seasonally adjusted) offset what few product-specific monthly price increases there were in November (e.g., gypsum and asphalt products). The softwood lumber PPI declined 17.8% in November after falling 7.4% in October. Even after accounting for the recent two-month 23.9% drop, the price index remains 45.4% higher than it was in April.
Although, according to Random Lengths data, lumber prices began climbing again in mid-November, the timing of the PPI survey makes it likely that the majority of upward price movement will not be evident in the BLS data until the next release in January 2021.
Not only has softwood lumber reached historic highs in terms of prices this year, but those prices have been extremely volatile. The two most volatile years for the softwood lumber PPI since 2001 have been 2020 (0.45) and 2018 (0.29). In contrast, the 20-year annualized volatility has been roughly 0.14. This year’s price index has been roughly four times as volatile as it was during the recessionary years of 2008 and 2009.
In addition to nominal price movements and tariffs on Canadian lumber, cross-border purchasers are affected by the strength of the U.S. dollar relative to the Canadian dollar. Not only has the USD weakened 12.0% since March, nearly one-quarter of that decline has occurred over the past four weeks as lumber prices began rising again.
Prices paid for gypsum products surged 4.8% in November, the largest gain since 2013 and following a relatively lengthy period of stability. Prior to November 2020, gypsum prices had not increased by more than 3.0% since February 2018.
Prices paid for ready-mix concrete (RMC) decreased 1.1% in October (seasonally adjusted), after falling 0.6% in October. Similar to softwood lumber prices, RMC has been fairly volatile recently compared to its long-run average.
The only region to experience a price increase in November was the South (+0.2%). Prices fell in the Northeast, Midwest, and West by 3.5%, 4.1%, and 0.3%, respectively (not seasonally adjusted).
Other changes in indexes relevant to home building and infrastructure are shown below.
Very frustrating that we are not seeing the price of lumber coming down on the front lines. Even more frustrating is the notices we are getting for price increases for petroleum based products such as roof shingles. I consider it gouging!
I believe if the prices don’t go down we are going to see the housing market fall in 2021 I have 7 clients who are waiting to start building because they can’t pay $30,000 to $40,000 more. I don’t know what we can do but it hurt not only contractor but everything thing that is connected to the industry