AirBnB to try Modular Construction

Fast Company published an exclusive about AirBnB at the end of November. The home sharing company proposed a new initiative called Backyard, which came from their division focused on the future. It is very ambitious, as it aims to rethink the entire process of designing, building, and updating homes.

While the company’s move into the physical world of construction is the main headline, I’m more interested in one of the other details – that the homes will be modular.

Modular structures are not a new idea, but they have not gained much traction in the residential world. The vast majority of homes that people live in today were built on site from lumber.

Modular construction, where larger sections of a structure are built off-site, is more common in commercial development. For example, the large parking garage that the State built on the corner of Buckingham and Washington near the Capitol building relied heavily on modules that were trucked in and assembled by crane.

State Garage at Buckingham and Washington

I like the idea of modular homes. That might seem like a surprising position for an “old house” person to take, but if I ever built a new home then I would definitely look at modular options in order to increase the build quality and reduce the construction time. I would expect modular construction to save me money too.

What is exciting about AirBnB getting into modular construction is that they have the potential to try the idea at a large scale. The Fast Company article noted that the company was valued at about $38 billion. As a point of comparison public homebuilder D.R. Horton, one of the largest in the country, had a market cap of about $13 billion at that time.

A large scale trial of modular homebuilding by AirBnB is unlikely to happen in Connecticut. We don’t have a large unmet demand for housing, and the available land is relatively far from the existing job centers. We’ll have to watch their experiment from a distance.

Hopefully the combination of AirBnB’s drive to expand their business, their ability to finance the effort, and their fresh perspective on homebuilding will result in many home innovations and progress towards making modular construction the standard for new residential properties.

Strong 2018 Hartford County Single-Family Sales

Hartford County finished 2018 with a closed deal count in the mid-8,000s for single-family homes for the third year in a row.

2019-01-04 Hartford County Single Family Sales

Median single-family homes prices increased by 4.5% from $220,000 to $230,000. Average single-family home prices also increased, though by a smaller percentage.

2019-01-04 Hartford County Single Family Prices

Breaking the number of sales down by price band, we can see that number of deals at prices below $200,000 decreased, while the number of deals in the middle price bands increased.

2019-01-04 Hartford County Single Family Sales by Price Band

All of these observations are positive for the real estate market. Deal count is holding steady near the high points established in the early 2000s. Prices are rising as measured by both common valuation metrics. The decreasing number of deals at the lower price points are a result of the rising prices – properties moved up into the next price band.

Most interesting is that the market is behaving similarly to the first few years of the 2000s. The data shows stable deal count with upward pressure on prices. Price increases were driven by strength at the low end of the market, which represents the majority of Greater Hartford’s housing stock.

This year’s market checkup shows a healthy real estate market without any significant warning signs.

December Contracts: Happy Holidays

2019-01-04 Hartford County Single Family Contracts in November 2018

December is traditionally the least active real estate month of the year, as folks take a step back to enjoy the holiday season. Although we saw the expected slowdown in number of deals, the month had respectable totals showing that many buyers and sellers had happy holidays.

When looking at contracts, the month was nearly 15% ahead of last December for single-family homes in Hartford County. We finished the year with about 1.3% fewer contracts in 2018 than in 2017.

At the big picture level this was all very positive – the local real estate market remained near peak levels of activity for the 3rd consecutive year.

A key story throughout 2018 was listing inventory. We noted regularly that there were few homes for buyers to choose from in the most popular price points, which was potentially holding back sales totals. Here is what the County-wide inventory looked like as of year end.

2019-01-04 Single-Family Inventory

The vertical axis in the chart is “months.” The height of the bar for each price band indicates the number of months it would take to sell all of the current listings at the pace of deals for that price band over the past year.

For example, there were 1,432 contracts signed over the past 12 months for homes with asking prices in the $300,000s. That translated to an average of 119 deals/month, so it should take about 3 months for the 362 listings currently available in that price band to find a buyer.

What I want to highlight is that inventory levels are lowest at the lowest price points, and steadily increase as the price point increases. This trend has been evident for years and, when combined with the deal totals, shows that the real estate market is active and working properly in the lower price bands that make up the majority of Hartford County’s housing stock. As a point of reference, over 70% of the contracts in 2018 were for properties with asking prices of $299k or less.

Since it is the end of the year, the next question we’ll investigate is related to pricing. How have prices changed during 2018? Look for an analysis of closed deals during the coming week.

2019-01-04 Hartford County Single Family Contracts in December 2018 by Town

A Well Maintained Building

39 Woodland - 5200 - 1920

The well maintained building at 39 Woodland Street in Hartford is identified by the Structures and Styles book as the Melancthon W. Jacobus, Sr. House. Its Tudor Revival architecture is in excellent condition 110 years after construction!

Kudos to the State for the recent maintenance to keep the 29,571 square foot structure looking good. The building is currently the central office for the Connecticut Technical Education and Career Center.

Repairing Crumbling Foundations

CT Department of Housing
Photo: CT Department of Housing

Property owners in a portion of Connecticut have been struggling with foundation problems. The concrete mix used to build their homes included pyrrhotite, which is a mineral that causes foundations to deteriorate due to exposure to air and water.

There is no way to repair a defective foundation. The only way to save a home with pyrrhotite is to replace the foundation, a very expensive project.

Home insurers didn’t think replacing the foundation was their responsibility since nothing new had happened to the house. Buyers avoided homes where there was any suspicion of foundation problems. Homeowners with the issue were basically stuck. They had to deal with it on their own.

The State Legislature stepped in during the 2018 session to create a non-profit organization called the Connecticut Foundation Solutions Indemnity Company, Inc. (CFSIC). The CFSIC will begin working with property owners in January 2019 to process crumbling foundation claims, and pay for replacement.

CFSIC is primarily funded by the State of Connecticut, which will issue $20 million in bonds per year for five years to seed the program. A second source of funding, a $12 surcharge on homeowners’ insurance policies, was also authorized by the Legislature. The surcharge is expected to contribute $8.5 million per year.

Additional assistance may also be available to impacted property owners. For example, Travelers recently announced that they could contribute $5 million to enhance the CFSIC benefit for their current and former policyholders. Not sure if other insurers will step up, but it’s great that one of our local companies has.

The crumbling foundation problem can be financially devastating to homeowners. We’re glad that there is a process in place to address the issue, and hope that the application process proceeds smoothly for those who are impacted.