Texas Manufactured Housing Producers Hope For A Spring Revival Of Tanking Market

Just 10 months ago, manufactured housing couldn’t be cranked out fast enough to meet the demand of people looking for affordable homeownership.

Now, business activity in the sector has slipped for the eighth consecutive month amid rising interest rates, leaving industry insiders to pin their hopes on a spring turnaround.

According to the November edition of the Texas Manufactured Housing Survey, every manufacturer reported a decrease in month-over-month sales, while the survey's production index was in negative territory and its number-of-employees index dropped to its lowest level on record.

The slip is due to a market correction after a boom during the coronavirus pandemic, along with an overall housing sector lull due to rising interest rates, said the Texas Real Estate Research Center, which conducts the monthly study.

“Activity in the overall housing sector has stalled as a result of the Federal Reserve’s interest rate increases, and manufactured housing is not immune to the slowdown,” TRERC research economist Harold Hunt said in a release, adding the consensus favors further rate hikes into the new year and “a generally negative short-term outlook for housing and housing-adjacent industries.”

Shipments and retail sales of manufactured homes first dropped sharply in July. But 2022 sales to consumers are still on track to outpace 2021, and manufacturers remained positive business would pick back up in the spring, matching the typical home sales cycle. 

“Given the sentiment of the manufacturing survey, I don’t know that that would’ve been my expectation three months ago or four months ago, as they were seeming quite pessimistic,” Rob Ripperda, vice president of operations for the Texas Manufactured Housing Association, told Bisnow.

“I think the fact that retail sales held up is probably giving them some confidence that we’re about to move into the spring buying season, and hopefully those new orders are going to come.” 

Coming out of the worst of the pandemic, interest rates were low, and people had stimulus money and the desire to move out of cities, leading to good times for the manufactured housing market, Ripperda said. New manufactured home sales hit a high of 1,656 units sold in June 2020, according to association data.

“There was just way more demand out there than there was the ability for these manufactured housing plants to meet that,” he said. 

Texas has the most plants by far with 26. The next highest concentration is in Alabama with 18, according to the Manufactured Housing Institute.

The relationship between plants and retailers is similar to the auto dealership model, Ripperda said. Manufactured housing plants build the houses that are delivered to licensed retailers, which use lines of credit from floor plan lenders. 

Floor plan lenders had been lenient with credit because of the increase in prices and pent-up consumer demand, he said. The average price per SF of manufactured homes nationally rose from $59 in 2020 to $72 in 2021, per Manufactured Housing Institute data. That is well below the average single-family house price per SF, which rose from $122 in 2020 to $143 in 2021.

But as June and July hit, inflation and building supply prices accelerated, leading floor plan lenders to pull back. That left retailers in a credit crunch, unable to order as many homes as before, Ripperda said.

“Supply ramped up and probably got past demand there for a little bit,” he said. “Production ramped up past the point of those order flows. We’ve seen a pullback of the manufacturers saying, ‘All right, we’re going to have to give the retailers time to clear some of this inventory.’” 

The last time retailer sales outpaced manufacturer shipments was in July 2021, according to TMHA data. The number of units shipped increased from 1,786 in March 2021 to 2,029 in March 2022. In October, the number dropped to 1,320, the fewest since July 2021.

But survey respondents remained positive regarding sales activity, supply chain smoothing and out-of-state shipments during the next six months.

“Higher housing costs across the board appear to be pulling consumers into the manufactured home market, and the industry’s affordability advantage remains a source of optimism,” Ripperda said.