Rising interest rates, inflation hindering manufactured housing demand

​COLLEGE STATION – General business activity cooled for the seventh consecutive month, according to the October edition of the Texas Manufactured Housing Survey (TMHS).

Sales and production continued to correct as higher interest rates chilled demand after a two-year pandemic boom. Decreased demand pulled the price of finished homes downward, but inflation and borrowing costs hindered affordability.

"Mortgage rates have elevated significantly as a result of the Federal Reserve’s rate increases," said Dr. Harold Hunt, research economist for the Texas Real Estate Research Center. "The result has been a real hit to affordability across the housing sector. Although interest rates are typically higher for manufactured homes compared with site-built product, the much lower purchase price still gives manufactured housing a strong advantage in the affordable-housing niche."

While long-term fundamentals remain favorable to the manufactured housing industry, the fourth quarter is poised to be painful. The TMHS employment index declined for the fourth straight month, illustrating how companies have adjusted to decreased activity. For employees still on payroll, the average hours worked has declined for the past two quarters. These movements held labor costs constant after at least 28 consecutive months of increases (the TMHS was launched in June 2020).

"After reducing their headcount and total hours of operation, manufacturers have slowed production to better match their current order flow," according to Rob Ripperda, vice president of operations for the Texas Manufactured Housing Association. "The four-month stretch from November through February is typically the seasonal low for retail sales, but manufacturers are hoping orders start picking back up with the start of the March selling season."

The TMHS expected-sales index reflected this sentiment, inching positive for the first time since April. Moreover, respondents believe business activity, economic uncertainty, and the overall outlook will stabilize in the spring. This optimism may be in anticipation of looser financial conditions, but the risk of a U.S. recession by the end of 2023 remains a forceful headwind.

The Texas Real Estate Research Center has a wealth of economic information online for free.