Economy Hits Manufactured Homes Sales

HOUSTON – (By Dale King, Realty News Report) — Recent fears about a recession gripping the nation’s economy and, in particular, taking a bite out of various financial markets in Texas, have caused folks to fret locally and throughout the U.S.

The potential for bad news is particularly rampant in the Lone Star State, impacting even the manufactured housing sales market where a slowdown is already anticipated, one likely to continue for the balance of 2022, according to industry experts and the Texas Real Estate Research Center at Texas A&M University (TRERC).

“It is now quite obvious that the U.S. economy is slowing,” said TRERC Research Economist Dr. Harold Hunt. “Mortgage rates are significantly higher than they were a year ago, and that is already putting a damper on the housing market.”

The lowest reading on record was recently registered in the latest Texas Manufactured Housing Survey sales index (the series began in June 2020). Activity is expected to slow in the second half of the year, TRERC said,.

“There is a wide disparity between economists regarding how much the economy will slow in the months ahead,” said Hunt. At the same time, “employment growth remains strong.”

TRERC reported in May that the manufactured-housing outlook had worsened for the first time since the COVID-19 pandemic recovery. Industry activity had slowed for the second straight month as sales slipped and trended downward.

New Orders Trending Downward – Texas Manufactured Housing Assn.

“The May TMHS made it clear that new-order volume is moving down for Texas manufacturers,” said Rob Ripperda, vice president of operations for the Texas Manufactured Housing Association.

“Interest-rate increases are hitting retailers on two fronts, with homebuyers now facing higher mortgage payments and rate increases in inventory-lending, raising retailers’ carrying costs on unsold homes.”

“Those factors,” he said, “elevate the risk associated with ordering more homes to the retail lot. As the retail channel cools, there is still healthy demand from communities and developers whose order delivery times may now be accelerating.”

Manufactured-housing output and payrolls held firm in June, the report says, but TMHS respondents contemplated pulling back production as they adjust to weaker demand. While raw materials prices fell for the first time in eight months, supply-chain issues continued both upstream and downstream from manufacturers.

“Market dynamics have shifted from supply constraints at the plant level to demand constraints at the retail level,” Ripperda noted. “Texas retailers are battling a lack of transportation and install services to deliver sold homes, falling foot traffic from new customers and increased inventory costs on any deals that fall through.”

These challenges, combined with impending regulatory changes from the Department of Energy, resulted in heightened uncertainty and a more moderate outlook after a bullish start to the year. Expectations of future interest-rate increases suggest that these headwinds may persist for the foreseeable future.

On a more positive note, despite the sales slowdown, Texas housing manufacturers increased production for the 12^th consecutive month in an attempt to reel in historically high backlogs.

“Manufacturers still have a healthy backlog of orders to work through, and there is no indication of plans to decrease the pace of home construction, especially amid increased payrolls and capital expenditures,” said Ripperda.

Pricing pressures, however, showed signs of easing as the TMHS supply-chain disruption index reached its lowest level since the pandemic started, and the raw-materials price index reached a year-to-date low.

“Prices on critical inputs for manufactured housing are beginning to see some relief,” said Hunt. “For example, lumber prices have declined almost 60 percent from where they were a year ago.”

TMHS respondents said they expect several supply-side challenges to subside in the next six months, but many trials loom.

“Interest rates will undoubtedly continue to increase as the Federal Reserve steps up its fight to control the highest inflation we’ve seen in 40 years,” said Hunt, “and there is more and more uncertainty surrounding the overall health of the economy.”

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