Tuesday, February 14, 2012

MODULAR POISED TO MAKE HUGE INROADS THIS YEAR

Economists are predicting that even though 2012 will be another crappy year for new single family housing units.

Multi-family and commercial construction will rebound by 45% over last year.  Moody's is predicting a 74% increase.  That brings the total number of townhouses, apartments and commercial units to somewhere between 260,000 and 340,000.

Home ownership rates, which have declined to the lowest levels since 1998, may keep dropping as the foreclosure crisis turns more Americans into renters. In addition, household formation will probably accelerate as an improving economy and growing employment embolden more people to stop sharing residences and strike out on their own.

A townhouse project in Philadelphia by Signature Homes
One reason why multifamily units may rebound faster than single-family houses is the drop in demand. Home ownership rate fell in the fourth quarter to 66 percent, according to Commerce Department data. It peaked at 69.2 percent in the second quarter of 2004 and fell to a 13-year low of 65.9 percent in the second quarter of 2011

Modular home factories can be at the forefront of this construction resurgence if they are willing to take a couple of risks. 

First is transforming their staff from only building residential housing to a mix of single family homes and commercial modules.  IDBS, Signature Homes and Champion Commercial are both poised to move quickly into this market as well as Clayton's Commercial division who has built a ton of government living quarters in the past.

Secondly there is the cash flow problem.  Unlike new home builders that purchase only one or two homes at a time and pay for them on delivery, these huge commercial projects will require the factories to borrow working capital to keep their production lines open and employees paid until the funds are released.  If a modular home factory has been on the edge over the past few years, not having this funding could be the end of the road for them if they try to build a large apartment project.

And here is the ultimate test for a factory.  What happens to the loyal new home builder when he is told that his home is being pushed back 3 weeks because the factory's production line is dedicated to building nothing but a large apartment complex.  Loyalty goes out the window and that builder will seek another factory.  So here is the Ten Million Dollar Question: Do you have a strategic plan that allows you to serve both markets efficiently, sufficiently and effectively? 


No comments: