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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (59799)	8/12/2006 5:57:05 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

The amateur builders on this board report lumber prices doubling over the past two years while large builders have been paying 37% less. Why the discrepancy? Obviously major home builders use a lot of building supplies, so they get very good prices with very little mark-up. By contrast, lets try to figure out the margins at Home Depot from the Income Report: $81,511,000 _ Revenue $54,191,000 _ Cost of Goods Sold So when someone buys building supplies at Home Depot, they are paying 50% more than Wholesale price, on average. Two years ago it was only a 47% mark-up, so Home Depot is charging these amateurs 6.5% more for in mark-up over wholesale, for everything they sell, than they did two years ago. Home Depot has increased their net profits 36% over two years ago on a 26% increase in revenue. Is that due to "increasing monopoly power in the building materials retail industry" as you suggest? Its obviously not due to increased competition in that industry. I also believe that major home builders get much better wholesale prices on lumber than Home Depot does, since lumber is only a small part of their business. So its likely that the price decline in lumber has been passed on to major builders, but not to retailers like Home Depot - or perhaps to a lesser extent. While they complain lumber has doubled in price, clearly not everything Home Depot sells has increased so much. So it could be that they offer many items as loss leaders, while gouging customers buying lumber because they might think they're not sophisticated enough to know the going price for lumber. Home Depot may also have signed a long term supply contract which has them locked into higher lumber prices from the past. So we need to know a lot more about the inside workings of retail stores than I have available to me. But I suspect that they are putting through these wild increases because they knew, until very recently, that home owners flush with refinancing money could afford to pay it. .