Hate Big Oil's Profits? Hate Homebuilders' Too

But in the longer term, the homebuilders' advantage is striking. The stocks of the country's two largest homebuilders, Pulte Homes(PHM Quote) and D.R. Horton(DHI Quote), are up 580% and 460% over the past five years, respectively, while the shares of the two best-performing major international oil companies, Total(TOT Quote) and BP(BP Quote), are up 101% and 47%. Both groups, of course, have beaten the broad market, which has lost a fifth of its value since September 2000.

Some Perspective

So why is it that so many consumers and politicians are calling for an investigation of oil and gas companies' "windfall" profits, and yet there has been nary a peep about the record-breaking profits produced in the last few years by homebuilders?

It is a peculiarity of the way we experience the world through the exchange of money that one type of sharp price appreciation can appear wildly unfair, and another can seem so reasonable. It seems the key difference here is that most middle-class Americans have a dog in the hunt when it comes to home prices. Homeowners like to see house values rise, and it makes them feel richer even if they never realize the gain. In contrast, few seem to own shares of oil companies, so there's nothing in the pump-price advance but pain.

Some striking parallels between the two advances may make you feel better about the rise in oil prices, and might even make you a buck.

The main thing to understand about the energy and homebuilding industries is that they are both highly cyclical and capital-intensive. This means that over the course of a decade they will have some very good years when supply is tight (and it's expected to be even tighter in the future) and some very bad years when supply is plentiful.

Because neither industry knows exactly how long the good years will last, they each need to make as much money as they can during the boom years. And during the bust years, they both need to invest as much of their savings as possible in property and equipment to ensure that they're in a position to compete when the next upswing arises.