Get Your House Delivered?

manufactured home

August 20, 2018

Trailer parks have long suffered a negative reputation but “manufactured homes” are becoming increasingly mainstream, and now represent 10% of new single-family home starts. The popularity of manufactured homes reflects the high cost of site-built houses. With home building becoming so expensive in some areas, many people are opting to have their houses delivered right from the factory.

Rising construction costs have been driven by an increase in the price of raw materials and commodities. For example, lumber prices are still close to all-time highs because of high demand, a severe Canadian wildfire, and the new 20% trade tariff on Canadian lumber (which accounts for 97% of US lumber imports).

Estimating the cost of a custom, site-built home is difficult because of the wide range of options. Generally, custom, site-built homes cost between $100 and $400 per square foot. Location and materials will play a major role in the price of your custom home, but the current average price in the United States is $295,000. Roughly 50% of costs come from materials, 48% come from labor, and 2% come from machines. By comparison, the average new manufactured home in the U.S. was $73,400 or slightly over $50 per square foot, according to U.S. Census Bureau data that was last updated in February.

Manufactured houses are built in factories, then assembled and are transported to the housing site via trucks and trailers. These homes cost at least 10-20% less than the cost of site-built homes and are cheaper for a multitude of reasons. The factory uses an assembly line to build these homes, so the process becomes more efficient. The home is built inside so there are no weather delays. Manufacturing is not disrupted by theft. The scale of production enables manufacturers to buy large quantities of materials at lower prices. Lastly, the property taxes on manufactured homes are also lower than on-site homes.

Homes built in factories are not only more affordable but have also become very customizable “without the old trailer-park stigma” says Jeremy Hill of Bloomberg. Options like vaulted ceilings, rainforest showers, built-in entertainment systems and electric fireplaces are very appealing, especially to young home buyers who require the latest bells and whistles. Buyers are also no longer limited to single or double wide homes. Many manufactured home builders offer two-story homes with five bedrooms. Technological advances, evolutionary designs, and a focus on quality are also driving forces behind the growth of manufactured housing.

Over the five years ending 2017 the number of manufactured home shipments has risen by 50%, according to information from the Manufactured Housing Institute. The companies benefiting from this growth include Skyline-Champion, Clayton Homes (owned by Berkshire), and Cavco Industries – the three largest players in manufactured housing who currently control over 70% of the U.S. market. It would not be surprising to see further significant growth, especially in expensive home building areas where families can save hundreds of thousands by getting their home built at a factory.

Dan Hall


The Rise of the Mega Company


August 13, 2018

Last week marked a new milestone in the history of the stock market.  Apple (AAPL) on Thursday became the first publicly traded company to reach a valuation of more than $1 trillion.  Apple is followed not far behind by other globally recognizable names such as Amazon, Alphabet (the parent company of Google), Microsoft, Facebook, and two relative newcomers from China, Tencent and Alibaba. The last on this list, Alibaba, while being the 7th largest publicly traded company in the world, trails Apple’s market cap by slightly more than half. The rise in these mega-companies is significant not only because of their sheer value, but also because of the broader impact that such large companies can have on the global economy.

There could be both potential upsides and downsides with companies becoming as large as these.  On the positive side, larger companies tend to have more pricing power and higher efficiencies of scale.  These savings can sometimes be passed on to the consumer leading to lower overall prices.  If these trends are strong enough it means that more people throughout the world could have access to new technologies and services than previously thought possible.

On the other side of this argument, however, stands the employee.  As these companies continue to grow they gain more pricing power over the wages paid to their workers.  There is new research being conducted to ensure that mega-companies are not contributing to the limited wage growth we have seen over the last decade for lower level employees, as well as the increasing wealth inequality gap throughout the world.  The top 30 companies in the US collectively capture over half of the total profits of their cohort.  In 1975 you had to add up the earnings of the top 109 companies to get to the same figure.

One more issue to consider here is perspective.  While Apple is the first public company to top out at over a trillion dollars, it is by no means the largest company in history when considering inflation.  By best estimates it is in fact the 7th largest, coming in right behind Standard Oil in 1900.  And the largest company ever?  That reward must go to the monopolistic Dutch East India Company in 1637 at a whopping inflation adjusted valuation of $7.9 trillion.  Apple still has a long way to go to compete with that.

One interesting trait that the top 7 largest companies have in common with the other largest companies in history is that they were and are the growth stocks of their era.  Today’s list started as what we commonly consider a “tech” stock (high growth, limited earnings, and no dividends), but have since merged and migrated to be more like a consumer discretionary.  In the past the largest were trading companies at the outset of true global trade links and oil and gas companies twice: both at the start of the motor industry and at the peak of oil prices in the last decade.  One more thing that all these companies have in common?  None held their value through the test of time and inflation.

Carey Blakley