Insurance companies don’t really make that much profit but real estate developers do OR: who should I be mad at more?

Insurance companies don’t really have that high of profit margins. It’s important to look at profit margins because if you look at revenue alone, it can look like they make a lot more than they do. But after paying their employees, the lease, the costs of sales, taxes, etc., they’re left with the net: the profit margin. In the insurance industry their profit margins are about 3.3%.

To put it in perspective, for small businesses, which make up 99.7% of the U.S. economy, 10-15% is considered financially vulnerable. 15% is stable. However, pharmaceutical companies make a net profit margin of 17%. Much higher than the insurance industry, but still vulnerable. The highest is the real estate development profit margins with 38% profit. That’s insane. I’m not mad at them for being profitable; I just think with profit margins that much higher than the average, it’s a market signal that it’s too good to be true.

Remember?

Inflation-Adjusted-U.S.-Home-Prices-Since-1900

My thoughts are that housing developments are probably over-valued and going to crash again. Businesses in the market will probably default or foreclose on these developments when it makes more sense to close them than keep building them, because they are losing more money than they are making.

Just an idea.

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