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Texas’ manufactured-housing correction continues as uncertainty looms

economic outlook worsened for the fifth consecutive month across Texas’
manufactured housing industry, according to the latest Texas Manufactured
Housing Survey (TMHS), as respondents unanimously noted a decline in business
activity. Production pulled back again after adjusting in July and August due
to decreased sales and shipments for both Texas and out-of-state orders.

“We enjoyed historically low interest rates for quite some time, but those days
look to be over for the foreseeable future,” said Dr. Harold Hunt, research
economist for the Texas Real Estate Research Center (TRERC). “The Federal
Reserve has increased the federal funds rate this year from zero to 3 percent
in their attempt to tame inflation.”

Higher interest rates shocked the demand for manufactured housing, allowing
upstream operations to catch up after widespread input shortages and
bottlenecks during the pandemic recovery. The TMHS supply-chain disruptions
index decreased for the second straight month, and prices for inputs are
falling. Survey respondents indicated payroll reductions and reduced workweeks,
but decreased demand for labor did not drag down wages and salaries.

“Wage growth has contributed to inflation, and the Fed is keeping a close eye
on how the labor market reacts to rate hikes. Most forecasts are predicting
rates to top out around 4.5 percent in mid-2023, which means an even higher
cost of capital for the manufactured housing industry. Mortgage rates should be
expected to move higher as well, further impacting buyer affordability,”​ said

“Rising interest rates coupled with the run up in manufacturers’ costs that
peaked in June have certainly lowered foot traffic on retail lots across the
state,” according to Rob Ripperda, vice president of operations for the Texas
Manufactured Housing Association. “The fundamental need for affordable housing,
however, hasn’t changed. As retailers work their way through existing
inventory, they will receive better pricing on new orders moving forward.”

The TMHS price index for finished homes decreased for the fourth consecutive
month and is expected to fall further over the next six months.

“​Invoice-cost reductions should help counteract higher inventory and mortgage
finance rates to some extent, but those rates will continue to rise with every
Fed increase,” said Ripperda.

Despite activity stalling over the past two quarters, manufacturers hinted at a
stabilization in early 2023. The TMHS expectations indices for company outlook
and business activity ticked positive for the first time since April, but
heightened uncertainty still surrounds the industry and the economy more

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