Filed under: Commodities, Housing
Reuters reports that the market value of some homes is less than the street price of their copper pipes. The result is that thieves are ripping out the pipes and selling them. Copper prices have risen 400% in the last three years while home prices fell 11% in the year ending January 2008 and could drop as much as 50% from the peak. This creates the ultimate domestic value play.
Here’s the opening anecdote from Reuters: “Shards of broken glass outside the basement window of 31 Vine Street hint at the destruction inside the three-story home. Thieves smashed the window to break in and then gutted the property for its copper pipes — a crime that has spread across the United Says as the economy slows and foreclosed homes stand empty and vulnerable.”
Demand for copper in China and India has boosted prices dramatically. Scrap copper sells for about $3.50 a pound, against 70 cents just three years ago. Scrap traders estimate that more than 80% of recycled copper is exported to China and India. So if a foreclosed home has, say, $5,000 worth of copper and is on the market for $100, investors could make a profit buying up the house, stripping out the copper, and selling it as scrap.
According to the Reuters interview with Cleveland city councilor Tony Brancatelli, “We’re seeing houses sold for $100 that are distressed houses that should not be recycled.” Some boarded-up homes in his Slavic Village community have “No copper, only PVC” painted on the boards to cease would-be thieves
Sounds like the kind of value play that would make Benjamin Graham proud.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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