Tag: Housing

3D Printed Homes Aren’t New

Reading Time: 3 minutes

I’ve seen many articles recently about the future of 3D printed homes. It sounds extremely exciting – pick a design, and the 3D printer goes off and creates the home with less waste and less labor and hopefully less price. There have been several recent articles such as this home listed on Zillow for a low price, this new startup that’s starting to build 3D printed communities in the desert,  and these 3D printed homes in Austin which aim to be a more mid-tier offering.

3d printed homes

Wait a second – aren’t 3D printed homes this just another name for manufactured housing? Seriously. Compare the picture above (3D printed home) with another graphic of a manufactured home from Cavco.

Cavco manufactured home looks just as good as 3D printed homes

Tying this into this blog, which is investment related, I just did a post on Skyline Champion and Cavco, which prefab homes in a manufacturing site and then send it along to the plot of land desired by the customer. The difference seems to be having a cool name for your process and doing most of the manufacturing onsite.

This home listed in Long Island was for sale for $300k – lauded for its ability to sell at a material discount to homes in the area. But my guess is that’s probably the same price / more expensive than what manufactured housing offers from Clayton, Cavco or Skyline. And the 3D printed house looks…. mehhhh. In this case, the true cost of this home likely came down to lot value in Long Island.

Let’s call a spade a spade…

I struggle to see how 3D printed homes will disrupt current manufacturing processes, especially in comparable product categories. A lot of these 3D printed homes still need fabrication work onsite after they are completed, too.

Here is the cement-based 3D printed home. The machine builds the structure by adding layer and layer of cement, but it looks like the guts of the home are still fabricated without machines. Not to mention you still need someone to install windows, doors, cabinets, countertops, and electrical work.

My guess is that, today, you can only build these structures where the land is very flat – otherwise it will throw off the machine. Technology improves, but it will improve in the manufacturing process in “traditional” areas too.

Many prefab techniques already exist and are continuing for onsite construction. For example, distributors like BuildersFirstsource often assemble the trusses for a home, or they will precut the wood ahead of time so the frame can easily be stood up on the home (BuildersFirstsource has a brand called Ready Frame which is an interesting watch if you have the time).

This same thing happened in Japan, where manufactured housing and 3D printed homes are more commonplace. Much has been written about applying what Japan does to the US.

But outside of low-cost housing, however, Americans desire too much choice and they might as well choose a Clayton Home over a “Google-backed startup” 3D printed home. Japan differs a bit too, in that their homes depreciate over time, whereas everywhere else they appreciate. So it makes sense to build cheap and quickly, raze it later, and start fresh.

We clearly need housing solutions. There is a housing shortage in the US, as I discussed in this post. I worry about that shortage leaving groups of people in the US behind. And I am afraid our employment trends mean that the shortage in construction trades will likely get worse. This will continue to drive up the cost of building. It’s no wonder why there are growing calls to democratize housing.


But solutions have been discussed in the US literally for 90 years. Architect Buckminster Fuller had the idea for a “Dymaxion House” which was a aluminum, grain silo-looking house that could be shipped and easily assembled with less waste. Frank Lloyd Wright did as well. The idea being that if the automobile was being democratized, so should housing.

Obviously, it never panned out.

The undertones sound exactly the same as today as the 1930’s, though. We need to improve cost, we need to save energy, we need to become more efficient. Democratize housing.

We have solutions to that today, but either consumers aren’t choosing it, there are zoning issues, or something else.

I personally have trouble seeing 3D printed homes offering a meaningful solution in the near term.

Housing Stocks Look Attractive After Decimation

Reading Time: 5 minutes

If you’ve only been reading the headlines, you would know that the S&P has entered into a correction (defined as contracting ~10% from the high). This is still much better than a bear market, down 20%.

However, the S&P does not tell the whole story. As shown by the iShares sector ETFs below, you can see that the S&P is down 9.8% from the high. Housing stocks, however, are down ~34% from the high.

IShares Sectors

Obviously, one headline related to housing is interest rates. As interest rates go up, mortgage rates will follow and that will make housing more expensive. It is very tough to own housing stocks while rates are going up, so the old playbook goes. And that certainly has proven true this year, even if mortgage rates are still quite low.

10 yr and mortgage rate

However, in addition to rates rising, there has been some pretty disappointing data as well. Housing starts, new home sales, permits, and so forth have come in below expectations of mid-to-high single digit growth it was previously growing at.

US Housing Data - Octo

This has investors worried that the combination of rising rates, increased labor costs, inflation in raw materials plus tight supply of housing will result in an affordability issue.

However, I think this is just a “pause” in housing’s recovery. To recap, much of housing’s story over the past couple of years has been a tightening of the months supply of homes (number of listed homes divided by monthly sales volume), which has started to unwind very recently. Note, 6 months supply is typically seen as “balanced.” This tight housing supply has led to an increase in housing prices.

Months supply housingCase Shiller housing prices

So if investors are concerned about affordability of housing (though by many metrics, the mortgage rate moving to 5%+ still makes housing historically affordable)… one thing that will slow home price appreciation is new supply of homes. We’ll lets take a look at the supply of new single family homes over time. As you can see, the inventory situation has relaxed much more recently.

Months supply new single family

In addition, builders are focused on increasing community count in 2H’18 and in 2019. I believe that this increased supply, although it may come with softer pricing, should help ease the price problems that new buyers are faced with. Higher pricing is good for home-builders, but it doesn’t help if they don’t have the volume to support it.

KBH: We were able to raise prices in over 60% of our communities and still maintain accessible price points for first-time buyers….. During the quarter, we reinvested $600 million in land acquisition and development, driving our owned and controlled lot count to 53,400, a sequential increase of more than 3,800 lots, further supporting our future community count growth.

WLH: Our average community count for the second quarter was 107, up from the 88 average communities during the second quarter of 2017. As of June 30, we were selling out of 110 active sales locations. We expect to open approximately 42 communities during the second half of 2018 and continue to expect to be selling out of approximately 125 new home communities by the end of the year.

TPH: Our operations in [Washington] will get a boost in the second half of the year with the expected opening of 6 new communities…In Phoenix, where we are at the tail end of a number of communities, but we’re poised to open approximately 10 communities over the next 9 months….We look forward to opening over 30 new communities in the second half of 2018, building a strong foundation for the future

TOL: Our community count grew from 283 at second quarter end to 301 at third quarter end, but still lagged fiscal year 2017’s 312 at third quarter end. We expect to reach approximately 315 selling communities by fiscal year-end 2018, which should give us a strong start to fiscal year ’19. And without giving specific guidance on community count for 2019, we already own or control enough communities we plan to open next fiscal year to project growth in community count by fiscal year-end 2019

If you’re wondering if all this new supply echoes the terror of the last crisis, I’m sorry it doesn’t.

As you can see, housing starts remain well-depressed from their long-term averages. I like to use the recession of the early 1980s as a baseline for the low in starts to see what it looked like outside of the obvious bubble we had. Recall, back then inflation moved up to 13.5%. During that time, housing starts were around 650k.

The current rate of ~850-900k starts does not seem that out of the realm now, especially when you consider household formation has gone up since the crisis (meaning more people will need more homes than 10 years ago).

US housing Starts - Oct

I remain positive on the housing cycle, despite all the negative headlines and share price performance. I’ll admit, I forgot the rules of the playbook – don’t buy housing stocks when rates are going up!

But at this point, a lot of building products stocks have been the babies thrown out with the bath water. I have never really liked homebuilders’ business model, other than NVR, but many building products names are exposed not only to new construction, but many have exposure to repair and remodel. R&R is much less cyclical (it was down less than 10% during the great recession) which means earnings can be more stable. I think that will also mean building product stocks should outperform other new-build exposed housing stocks.

I would consider taking a look at Beacon Roofing, HD Supply, Masco, and Fortune Brands and Security, which have sold off this year (some more than others) and look attractive relative to the rest of the market.