Rising Oil Prices Hitting Home Builders
Rising oil prices could be very material regarding materials and HB profits in the upcoming quarter.
We know home prices have been crashing over the past 6 months. We know HBs have been liquidating communities at 40-50% off. We know sales pace has been slowing and backlog is way down. Yes we know how tough it is out there competing with rising inventory of foreclosures.
But what is really amazing is the rise in prices of building material costs over the past six months. Shingles are going through the roof....my attempt at a joke but it is really the truth. Transportation costs delivering concrete soaring. Pretty much most components of building a house has gone up materially over the past six months.
You havn't heard much about this on the CCs yet nor from other better informed CAPS members. But it clearly could be something worth keeping an eye on....especially as costs for some materials have doubled.
With airlines, they can cut out planes and double fares. Unfortunately for HBs, there is so much foreclosure inventory coming to market in the areas where they build, there is little they can do to create pricing power. As a matter of fact pricing is going the wrong way.....DOWN.
No pricing power and rising costs.....it will be interesting to see if analysts raise this issue on the CC.
The above is teetering on the foundation that interest rates are rising while unemployment issues loom and consumer confidence is failing.
Sure, let's invest $600 million for a fraction of SPF when we could buy the whole company for less than half the price.....what the heck is going on there?