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Several Americans, unable to afford homes in the competitive real estate market, are opting for prefabricated homes, contributing to a budding rebound in the sales of this more affordable housing alternative. Census Bureau data reveals that shipments of manufactured homes saw a consistent increase for five consecutive months until August, reaching a seasonally adjusted annualized rate of 89,000—up from 83,000 in March, the lowest point since May.
The convergence of elevated mortgage interest rates and soaring prices for both new and existing homes has made home ownership unattainable for many potential buyers. This trend seems to be driving an increased interest in the prefabricated housing market, a sector that has seen a decline in market share over the last decade.
According to Brian Abramson, CEO of Method Homes, a builder specializing in higher-end modular homes, the current interest rates are excluding individuals on the brink of affording a new custom home. This situation is expected to lead to a continued surge in demand for prefabricated homes. In contrast to homes constructed on-site, factory-built homes require significantly less on-site labour and are not susceptible to the cost escalations often seen in traditional “stick-built” houses.
Method Homes experienced a 10% increase in incoming business in the first three quarters of this year, following a period of no growth in 2022, as mentioned by Abramson.
Despite facing stigma, the rise in home loan rates due to the Federal Reserve’s rate-hike cycle has impacted buyer affordability, with the average mortgage loan taken out in September costing 11% more than last year’s average.
The Mortgage Bankers Association reports that the average mortgage payment last year was $1,941. However, the average contract rate on a 30-year fixed mortgage climbed to 7.90% last month, marking the highest rate in more than two decades.
According to Census data from May, which is the most recent available, the average price of a prefabricated home stood at $129,900. Even after factoring in the cost of a typical building lot of nearly $110,000, a prefabricated home remains about 40% more economical than new or existing site-built homes.
Despite this significant cost difference, the prefabricated industry has struggled to reclaim market share since the 2007-2009 financial crisis. This challenge is primarily attributed to consumer concerns that the lower price may indicate lower quality, as noted by Danushka Nanayakkara, assistant vice president of forecasting at the National Association of Home Builders (NAHB).
Simultaneously, actual challenges arise concerning transportation, locating factories capable of handling large quantities, and the time required to move sizable buildings. Additionally, building codes in certain cities limit off-site production.
Devin Perry, executive director of business improvement at the National Association of Home Builders (NAHB), notes that most modular construction factories are concentrated in the Mid-Atlantic and Southeast regions, where modular market share exceeds the national average of 2%.
Perry mentioned that as challenges such as labour and material shortages intensify in traditional on-site construction, there is a growing interest in alternative methods. This presents opportunities for modular construction to gain a larger market share.
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