What a week. What a month. What a year, already. And we are only 2 months in. So much has happened. For the Stock Market, February ended basically where it started. A quick sell-off to end the month of January erased the 2021 gains. February started out with a bang and a big rally. It got reversed this week. Volatile price action has been the norm in this young year. We expect it to continue. There are some really fascinating and innovative things happening, which are very investable for the long-term. But the Market is rattled a bit by some important issues, short-term.
Interest rates are the culprit that drove stock prices lower. Rates have moved fast and far. The Economy is recovering and asset prices have swelled. Vaccine optimism might be ahead of itself still, though significant strides have been had. Stocks have been priced forward and have discounted a lot of the good. We are at an inflection point of sorts. A breather is warranted. I will cover the Market moves later in the piece, but something else caught my attention this week, which was a little mind-blowing. It’s the beginning of something new and radically revolutionary.
There’s a concept occurring with increased frequency: Being there without being there. It’s a real thing. It’s an irreversible theme. It’s become a virtual world in which we live. Importantly; You save time and you save money. It’s been disruptive to pretty much everyone. An industry that really hasn’t changed much for decades is finally being disrupted. And in a big way. It’s all about home.
Last year, 63% of homebuyers made an offer without even seeing their home. They didn’t go to the property. They didn’t step inside. They did everything online. They searched the web and made an offer without ever setting foot in the house. It’s just incredible. That was in 2020. That’s up from 32% the year before. The trend was already in place. Covid accelerated it. Convenience and efficiency matter. You don’t have to take days off work or drive everywhere anymore.
Zillow announced last week that they are improving their 3D touring technology. Today, we are able to see pictures of houses in 3D and get some sense of the property. That alone was a game-changing technology for the Housing Market when rolled out a decade and a half ago. Now, Zillow is going to use Artificial Intelligence (AI) and machine learning to provide a more interactive floorplan. Home shopping done from the home, anytime, anywhere.
There has also been a surge in smart contracts to buy a home. A smart contract is a contract that is written in digital code on a decentralized, encrypted blockchain network. It basically self-executes. The code verifies all of the obligations for the associated parties. Once completed, the contract executes. It’s very secure and efficient. Many transactions are also taking place in cryptocurrencies with increasing frequency these days.
Perhaps the biggest disruption of all in the Real Estate Market is coming in construction. There has been a housing shortage for years. Now that there is strong demand from the Millennial and Generation Z American populations, something that had been missing prior to Covid, household formation has been a boom for the home construction market. Lumber prices have nearly doubled. Finding a contractor and a crew has gotten harder and much more expensive. It is definitely not the most efficient process. There’s a futuristic solution that’s already here in the present. Houses are being “printed.” You read that right, “printed.”
3D printing has penetrated home construction. History was made with the first American commercial 3D-printed house on the market for sale. The massive 3-D-printing machine melts down solid materials and ejects them just like a hot glue gun. The material is cement-like, creating the foundation, the walls and many other aspects of the home. Here’s the kicker: It only took 2 days to build with just 3 crew members at half the cost. The house is billed to be stronger and more durable than a wood-frame house. It is also guaranteed to last at least 50 years, though it is expected to last much longer, according to the press release.
Seeing the video of the construction, the 3D-printer looks like a huge spout squeezing out concrete toothpaste in long lines. The result is an incredibly solid, resistant structure. In raw form, the walls look a bit like stacked layers, which have been described as “concrete corduroy,” but they can be smoothed to look like sheetrock. The 3D-printed home required little labor to build at a lower cost. These are extremely attractive elements as the industry deals with a severe labor shortage and high material costs. Forget that the price of lumber has skyrocketed by over 70% in a year, after remodels and new home construction demand spiked in Covid. 3D houses have no lumber.
This 3D house is on sale right now for under $300K. That is roughly half of the price of comparable houses in its Long Island New York neighborhood. The new house reportedly has Thousands of potential buyers expressing interest. The 3D-printer model is definitely not going to be a source of new jobs in America. But it sure could go a long way to making homeownership much more affordable. This large-scale 3D printing platform has so much potential, and can go a long way to bring back our supply chains to American soil, which will enhance our national security. We are invested there. It’s still so early days for these innovative investment themes.
Back to the Market: For weeks, the Bond Market has been pricing in a hotter Economy as vaccine progress and more stimulus is set to hit. But the Fed said this week they still don’t see inflation as a problem. The Market is certainly testing the Fed. Stocks sold-off. Bonds sold-off more. The selling pressure has also been attributed to technical dynamics and a lack of liquidity. The Machines have been active, and corresponding algorithms tied to momentum trades simply got unwound. The sharpest declines have come to the areas that had done the best in 2020; Growth and Momentum stocks that have been exacerbated by crowded positioning and very stretched valuations.
This sell-off has certainly been a wake-up call for investors. Could this be it? Probably not. But quick and sharp declines are like a high-heater under the chin. For you baseball fans, you know that when a hitter is crowding the plate or acting overly confident, the pitcher will send a message by throwing a fastball up and in to knock the hitter back and keep him honest. It’s called “chin music.” Perhaps this is the Market reminding investors that there are indeed limits for the excesses and inherent bubbles. The bubbles certainly deflated a bit this week. The activity has actually been quite healthy. The Market was way overbought again. The irrational exuberance built up has been quieted for now. That’s been a theme throughout Covid. Volatile price action is probably here for a while as the re-opening of America continues. We always have to remind ourselves that the Stock Market takes the escalator up and the elevator down.
There’s still a lot to like out there for we investors, taking a longer-term view. But price matters. Boring Blue Chip Dividend stocks are doing their jobs and holding in quite well, while the faster-growing stocks correct their excesses. It’s normal. It’s healthy. It’s never fun. We are all over it.
Have a nice weekend. We will be back, dark and early on Monday.