Rising Interest Rates Hobbling Texas Manufactured Home Industry

Rising Interest Rates Hobbling Texas Manufactured Home Industry

Residential News » Dallas Edition | By Michael Gerrity | June 14, 2022 8:45 AM ET

According to the latest Texas Manufactured Housing Survey (TMHS), Texas' manufactured-housing outlook worsened for the first time since the COVID-19 pandemic recovery. Industry activity has now slowed for the second straight month as sales slipped and trended downward.

"The May 2022 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 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."

Despite the sales slowdown, Texas housing manufacturers increased production for the 12th 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.

The TMHS corroborated an ongoing employment expansion despite a tight labor market, forcing manufacturers to elevate wages and earnings.

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," according to Dr. Harold Hunt, research economist at the Texas Real Estate Research Center (TRERC) at Texas A&M University. "For example, lumber prices have declined almost 60 percent from where they were a year ago."

TMHS respondents expect several supply-side challenges to subside in the next six months, but many challenges 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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