Texas’ housing manufacturers ‘hit the brakes’ in response to higher interest rates, economic outlook
COLLEGE STATION, Tex. (Texas Real Estate Research Center) – After two years of incessant activity, Texas’ housing manufacturers pulled back on production as the industry adjusted to higher interest rates and a mixed economic outlook.
Results from the latest Texas Real Estate Research Center at Texas A&M University (TRERC) indicate the production index dipped into negative territory in July and will likely fall further in coming months.
The Texas Manufactured Housing Survey’s (TMHS) sales index reached a record low on top of eight consecutive monthly decreases, and the number of cancelations elevated amid rapid changes in the mortgage market.
“Manufacturers had to hit the brakes after two years of playing catch-up with retail and community demand," said Rob Ripperda, vice president of operations for the Texas Manufactured Housing Association. “When backlogs were running around eight months, retailers were scrambling to keep homes on their lots and avoid stockouts."
Backlogs have fallen substantially over the past year, with particularly stark readings in the TMHS index since May.
“Manufacturers kept pushing their productivity higher, while economic conditions started lowering the number of potential buyers showing up on retail lots. Inventories filled up, and retailers are now canceling existing orders that don’t have buyers already lined up," said Ripperda.
Dampened demand is expected to persist during the second half of 2022, and the industry responded with the first TMHS employee-index contraction since onset of the COVID-19 pandemic.
“Payroll adjustments are in line with trends we are seeing in the broader labor market," said TRERC Senior Research Associate Wesley Miller. “Despite an uptick in initial unemployment insurance claims at the national level, there is still a significant shortage of skilled labor, pushing nominal wages higher. Housing manufacturers expect the shortage to persist and are preparing to raise wages even higher."
While labor costs are increasing, prices paid for raw materials fell for the second straight month.
“Commodity prices are finally taking a breather, and the cost of lumber reached a new low for 2022 this week," said TRERC Research Economist Dr. Harold Hunt. “Although still problematic, supply chains have been stabilizing over the past 12 months and could ease prices further. The timing couldn’t be better as the U.S. economy continues to slow."
In addition to economic-growth concerns, the manufactured housing industry is grappling with impending regulatory changes from the Department of Energy. Despite the various headwinds, the TMHS capital-expenditures index held well above zero, indicating longer-run optimism behind the cloud of uncertainty.
Funded by Texas real estate licensee fees, TRERC was created by the state legislature to meet the needs of many audiences, including the real estate industry, instructors, researchers, and the public.
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