Hedging Cost of New Custom Home build

[RubyTuesday]

We will be building a house over the next 16-18 months.

As everyone knows, there are numerous supply chain issues and a lot of volatility in input costs (lumber, copper, etc).

I know large builders probably trade lumber and copper futures to hedge their risks. I wonder if an individual can do something similar for a single new home.

Does anyone have any knowledge or experience in using financial instruments to hedge these costs?

Thanks in advance for your input.

[RubyTuesday]

Bumping this in hopes someone has some knowledge or experience in using commodity futures to hedge construction costs.

I’m assuming it would involve lumber and copper futures (other instruments?). I suspect the cost/risk may not be worth it for a single modest project, and I’m interested on intellectual basis whether implementation is feasible or not.

[alex_686]

I’m assuming it would involve lumber and copper futures (other instruments?). I suspect the cost/risk may not be worth it for a single modest project, and I’m interested on intellectual basis whether implementation is feasible or not.

I work in a tangent field. Everything is going to have to be a proxy hedge so a imprecise hedge. The futures are going to be the wrong size, probably vastly too big.

No good hedges for labor. You are going to need to throw in oil. Work trucks use gas, shingles use asphalt. There are CPI hedges but those are for institutions. You could vaguely replicate something with TIPS.

[TravelforFun]

We will be building a house over the next 16-18 months.

As everyone knows, there are numerous supply chain issues and a lot of volatility in input costs (lumber, copper, etc).

I know large builders probably trade lumber and copper futures to hedge their risks. I wonder if an individual can do something similar for a single new home.

Does anyone have any knowledge or experience in using financial instruments to hedge these costs?

Thanks in advance for your input.

I'm building a home right now. They started working on it 6 months ago and the house is only 65% complete. Labor and material shortages are dragging the schedule out. The contract we have with the builder contains a high number of allowances from concrete to framing to countertops because that's how builders protect themselves. Luckily, we have not exceeded any allowance yet. We're in the Dallas-Fort Worth Area.

TravelforFun

[RubyTuesday]

I’m assuming it would involve lumber and copper futures (other instruments?). I suspect the cost/risk may not be worth it for a single modest project, and I’m interested on intellectual basis whether implementation is feasible or not.

I work in a tangent field. Everything is going to have to be a proxy hedge so a imprecise hedge. The futures are going to be the wrong size, probably vastly too big.

No good hedges for labor. You are going to need to throw in oil. Work trucks use gas, shingles use asphalt. There are CPI hedges but those are for institutions. You could vaguely replicate something with TIPS.

I have most of our fixed income in TIPS and I Bonds (and some stable value), but the TIPS’ duration is a little long to hedge 12-18 month expenses.

I read that CME Group launched a micro copper futures contract that is financially settled. Probably still going outside my wheelhouse, but will continue to monitor the thread and research.

We will likely contract with builder in 2-3 months

[Oregano]

We will be building a house over the next 16-18 months.

As everyone knows, there are numerous supply chain issues and a lot of volatility in input costs (lumber, copper, etc).

I know large builders probably trade lumber and copper futures to hedge their risks. I wonder if an individual can do something similar for a single new home.

Does anyone have any knowledge or experience in using financial instruments to hedge these costs?

Thanks in advance for your input.

There is no practical way to do this. It's even possible that your imperfect hedges will backfire (i.e., you lose money on the hedges even if the building costs rise).