Saturday, April 08, 2006
The Truth about the Home Builder's Profits
This upcoming quarter profits will rise again!!! Next quarter they might do the same.
It's the future after that that scares the living day light out of me.
I need to be back in the office to put the decimal point on these numbers but here is the oil impact:
aggregate (gas is used to dry the aggregate, trucking went up, crushing cost go up with energy): $2.00 a ton or $2.85 per linear street
Asphalt: $10.00 per ton or $8.50 per linear foot of residential street
Clearing and Grubbing: In the DC market 2 years ago 100 acres of mature timber could be sold for $800 per acre. The cost to truck the timber to PA is now too large. No timber rights are being sold.
Concrete: need to heat lime stone to 2 to 3 thousand degrees to make portland cement: $18 per cubic yard of concrete, or $2,160 per house.
Concrete storm pipe: $6.00 per foot or $300 per singe family lot.
The list doesn't end.
Copper, asphalt shingles, glass windows, lumber, petroleum base vynal siding, the trucking cost for all materials, equipment operation cost, and on and on.
This isn't inflation. It is hyper-inflation. But why can't the Feds see it? For the same reason Toll Brothers doesn't see it. As housing drops in number the hunger of the subcontractors to keep their plate full of work drives down their profit margins. But this is only temporary.
I just bid a job where I removed half my equipment cost in order to get the job. Contractors are bidding cash flow, not profits anymore. But the spring is tightening up. The economy which drives the real cost is out of control. And the spring will let loose some day.
I'm sticking with housing, but shifting more towards the commidities that feed it.
Gravel, concrete, and lumber companies.
It's the future after that that scares the living day light out of me.
I need to be back in the office to put the decimal point on these numbers but here is the oil impact:
aggregate (gas is used to dry the aggregate, trucking went up, crushing cost go up with energy): $2.00 a ton or $2.85 per linear street
Asphalt: $10.00 per ton or $8.50 per linear foot of residential street
Clearing and Grubbing: In the DC market 2 years ago 100 acres of mature timber could be sold for $800 per acre. The cost to truck the timber to PA is now too large. No timber rights are being sold.
Concrete: need to heat lime stone to 2 to 3 thousand degrees to make portland cement: $18 per cubic yard of concrete, or $2,160 per house.
Concrete storm pipe: $6.00 per foot or $300 per singe family lot.
The list doesn't end.
Copper, asphalt shingles, glass windows, lumber, petroleum base vynal siding, the trucking cost for all materials, equipment operation cost, and on and on.
This isn't inflation. It is hyper-inflation. But why can't the Feds see it? For the same reason Toll Brothers doesn't see it. As housing drops in number the hunger of the subcontractors to keep their plate full of work drives down their profit margins. But this is only temporary.
I just bid a job where I removed half my equipment cost in order to get the job. Contractors are bidding cash flow, not profits anymore. But the spring is tightening up. The economy which drives the real cost is out of control. And the spring will let loose some day.
I'm sticking with housing, but shifting more towards the commidities that feed it.
Gravel, concrete, and lumber companies.
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