Friday, December 09, 2005

My little Index -Why it didn't Die

November 21, 2005

Pulte Homes PHM $41.81
DR Horten DHI $36.14
Beazer Homes BZH $68.67
Lennar LEN $57.37
Plum Creek Timber PCL $38.74
Toll Brother TOL $35.24

Total $277.97

December 9, 2005

Pulte Homes PHM $40.71
DR Horten DHI $35.44
Beazer Homes BZH $68.50
Lennar LEN $57.80
Plum Creek Timber PCL $37.4
Toll Brother TOL $35.20

Subtotal $275.05
Dividends BZH $.10
Total $275.15

Lost 1.01 percent

Lost one percent since last posted. I don't care. Look at the press. These companies over came.

The market has been insisting it is time for the builders to die. This table pounding has become rampant. Every moron is eager to prove that they learned from the DOT com collasp. But what have they learned? The telecoms were money losing companies laden with debt whose expenses were rising every day while their ability to collect revenue was being challenged every day. The home builders have a collasping expense - LAND.

It cost me $38,000 per lot to build the infrastructure such as streets, grading and utilities for a 200 lot development in 2000. Today it cost me $41,000 per lot. $3,000 over 5 years is not run away inflation its 1.5% per year!!! Of course there is still framing, foundations, ects. But I think you get the idea. The house have nearly double in price over this same time while construction costs have remain modest.

The difference is the land. It is your land that inflated in value. Not the house.

What this means is if the home builder can buy land for 1/3 the price and build out in the country side. They will be able to sell these houses to the retiring baby boom generation for great deals to them and huge profits for the developers. When you have a huge chunk of the market no longer tied to suburbia for work. You have changed everything.

In 1970 this country was in the mist of a huge building boom that lasted a dozen years. During that time the first people that moved out beyond that beltway into the suburbs made great property value gains. The last people moving out of the inner city were crushed. Many cities found themselves in a state of collasp with crack house after crack house.

Soon those crack houses will be in the white American suburbs as the next great migration begins. And just as the home builders turned morons into millionaires. There are plenty of construction idiots out there ready to reap in the money for this next housing boom. It is coming and coming soon.

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