Given recent cost trends, we wanted to provide a more extensive update on some of the reasons for these increases, including an increase for February.

The majority of our commodity purchases, like lumber, trusses, OSB, wiring, steel and PVC pipe, are contractually tied to indices, or purchased on short term contracts that move up and down with market demand and supply. Recently, the cost of most commodities has been moving up as the market is responding to higher than expected demand, and in some cases, reduced supply of these products.

Manufactured goods are purchased on longer term contracts. We try to space the end of these contracts throughout the year, but many of them end at the beginning of the year. As is the case with commodities, many manufacturers are demanding higher prices as market conditions improve. Some of the commodity increases we incurred this month included interior doors, water heaters, resilient flooring and hardwood siding. Gas furnace prices are also increasing due to changes in government regulations, and toilet seats are increasing due to tariffs.

Demand for commodities and most manufactured goods is stronger than anticipated for this time of year. With continued low unemployment, low interest rates and a mild winter, the pace of construction is increasing faster than anticipated. In December, housing starts increased 16.9% to 1.608 million units, the highest level since 2006.

At the same time, the latter half of 2019 saw many mills and lumber yards throughout the US and Canada closing in response to what were at the time lower prices. This has significantly affected the supply of lumber products.

The result of this increase in demand, following the reduction in supply, has led to price increases for OSB, lumber, trusses and many other commodities. For example, the index for OSB just reached a 10-month high during a time of the year when prices are typically low.

Unfortunately, market analysts are predicting continued upward pricing pressure throughout the first half of the year. We will do everything possible to mitigate these increases