In tough real estate market, a century-old home idea could come back

A crane taking four 15-foot-wide by 60-foot-long modular home segments and stacking them one on top of the other to make a new duplex in Aurora, Colorado in 2018.

Hyoung Chang | Denver Post | Getty Images

A century ago, a first-time homebuyer might begin their search in a catalog for a kit-built home from Sears and others. In today’s real estate market, the idea rarely registers in house hunting. But with affordability stretched to an extreme and more buyers thinking about sustainability, the modular home — the kit home’s descendent — could be poised for the spotlight.

In the least, U.S. consumers looking to build an efficient and sustainable home should consider going modular. Green construction experts generally agree that modular construction generates less waste and causes less disruption to plants and animals on building sites. And instead of thousands of pieces of lumber, nails, and roofing material that you’d have received with those century-ago kits, modular homes today come in fewer but far larger pieces — assembled in a manufacturer’s facilities, then shipped to the home site, where they’re assembled together. In fact, the modules that make up a modular home can be the size of whole rooms. Typically, it is only the home’s foundation that is actually built on-site.

Modular construction has also attracted interest from affordable housing advocates with mortgage rates, though now on the decline, having reached as high as 8% this year and home prices up in almost every major metro market. The first of up to 2,000 single-family modular homes are being assembled in Chicago’s Southside and will be available for about a $1,000 down payment thanks to a partnership between city and state governments and area non-profits. A smaller affordable modular home project is planned for the Maryland suburbs outside Washington, D.C. Modular dwellings have also been used to combat homelessness in the U.S., Canada, and elsewhere. The issue was raised this week in the op-ed section of the New York Times.

Modular housing can be lower cost

Modular homes have to comply with state and local building codes, and they are financed the same as traditional construction. The difference is price. Modular construction averages $80 to $160 a square foot, which is 10-20% cheaper than traditional construction, according to HomeGuide. That puts the cost of building a typical modular home at $120,000 to $270,000 compared to $155,000 to $416,000 for traditional construction.

The modular building method can save money due to scale. “We have seen offsite construction of repeatable modular units save as much as 25 percent of vertical construction costs,” said Dave Dauphinais, associate partner at the management consultant McKinsey & Company.

Based on these construction costs, down payment and monthly mortgage expenses for a 30-year fixed mortgage at 7.25% interest would be $13,500 and $1749.78/monthly for a high-end modular home, versus $20,800 and $2,695.96/monthly for a…

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