Economy

Increase in Prefabricated Home Shipments Amid Soaring Property Prices

By Amina Niasse

NEW YORK (Reuters) – A growing number of Americans priced out of the competitive residential real estate market are exploring prefabricated homes, contributing to a gradual recovery in sales of this more affordable housing option.

According to the Census Bureau, shipments of manufactured homes have increased for five consecutive months through August, the latest month for which data is available. Shipments rose by 7%, reaching a seasonally adjusted annual rate of 89,000, up from a low of 83,000 in March—the lowest figure since May 2020.

High mortgage rates and elevated prices for both new and existing homes have made homeownership unattainable for many potential buyers. This situation appears to be driving demand in the prefabricated housing sector, which has seen a decline in market share over the last ten years.

"Interest rates are pushing people who are on the brink of being able to build a custom home out of the running," noted Brian Abramson, CEO of Method Homes, a company specializing in higher-end modular homes. "There will continue to be interest in prefabricated homes because they offer a viable option for building."

Factory-built homes, unlike traditional site-built homes, require significantly less on-site labor and do not experience the cost escalations often associated with conventional construction methods, Abramson explained.

Method Homes has seen a 10% increase in new business this year through the third quarter, following a year of stagnation in 2022, according to Abramson.

OVERCOMING STIGMA

Rising home loan rates, prompted by the Federal Reserve’s monetary policy changes, have impacted buyer affordability. The average mortgage payment for new loans in September was 11% higher than the previous year’s average of $1,941, as reported by the Mortgage Bankers Association. The average interest rate on a 30-year fixed mortgage reached 7.90% last month, the highest level in over twenty years.

As of May, the average price of a prefabricated home was $129,900, according to Census data. When considering the cost of a typical building lot, which averages nearly $110,000, a prefabricated home remains about 40% less expensive than new or existing site-built houses.

Despite this significant cost advantage, the prefabricated housing industry has faced challenges in reclaiming its market share since the financial crisis of 2007-2009. This struggle has been largely due to consumer perceptions that lower price points equate to inferior quality, as highlighted by Danushka Nanayakkara, assistant vice president of forecasting at the National Association of Home Builders (NAHB).

"There’s a stigma associated with modular panelized construction, as many people associate it with mobile homes," Nanayakkara explained. "Additionally, there are real obstacles related to transportation, finding factories capable of producing these volumes, and the time it takes to move these large structures. Local building codes that restrict off-site production also contribute to these challenges."

Most modular construction factories are located in the Mid-Atlantic and Southeast regions, where the market share for modular homes exceeds the national average of 2%, according to Devin Perry, executive director of business improvement programs at the NAHB.

"As traditional on-site construction encounters issues like labor and material shortages, people begin to explore alternative methods," Perry stated. "This shift creates opportunities for the modular housing sector to capture a greater portion of the market."

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker