Sunday, March 18, 2012

Predictions for the Future of Modular Housing

The future of newly-built home ownership is in flux.  The old “normal” will not return and modular home factories and their authorized builders need to recognize this change.

Four demographic groups will drive housing markets for the next decade, each of which is large and facing a unique set of challenges.

They are:
  • Older baby boomers, who will constitute a senior population unprecedented in size;
  • Younger baby boomers, many of whom will be unable to sell their current suburban homes to move to new jobs;
  • Generation Y, which will be renting housing far longer than did past generations; and
  • Immigrants and their children, who will want to move to the suburbs but may find housing there too expensive even after the current drop in prices.

These four groups present both a slowdown in building single family homes and an increase in demand for multi-family housing.  The need for rental housing will probably find most factories ill-prepared for this shifting housing market. REITs will target investments in all of these groups knowing that ROI will climb as the population in each increase.

Modular home factories that have not geared up for this new reality will start finding a dwindling market for SFH (single family homes), once the bread and butter of the modular housing industry.  The market for mass produced SFH will start becoming the domain of a younger, more cash strapped demographic. 

Here are four reasons that Young Americans may not be the salvation the modular housing industry had hoped:
  1. Younger Americans are simply less affluent.  This is backed by net worth data and also salary information.
  2. The decline in good paying manufacturing work.  Some have to put off buying a home in place of going to college. 
  3. Delaying marriage and starting a family.  This trend has been going on for a few decades now but the push to buy a home usually is done for emotional reasons.  With younger Americans delaying marriage and starting a family, the emotional need to buy is pushed further out.
  4. Movement to large metro areas where land is not available. 
The population of the United States is projected to grow rapidly during the coming decade. This will produce strong demand for housing once the economy recovers and unemployment drops. However, it is probable that the homeownership rate, currently 67 percent, will fall to levels not seen in two decades. This will produce a strong market for rental housing in the years ahead.

Workforce housing will remain a challenge. Many in the moderate-income workforce will find their incomes constrained and housing in the communities where they work out of their reach despite the current market declines.

Getting SFH modular industry to understand this change and adapt their marketing and factories to this new reality will be expensive both in dollars and time.  As the Fed continues to debate the mortgage tax deduction and require all home loans not financed through FHA to be 20% or more, both builders and factory owners could be caught trying to sell their homes to people that can ill afford to buy them or find land near their workplace to put them.

Rental units will begin to be produced by the big commercial modular factories with thousands of identical units being produced to meet the demand for this new rental market.

Survival means that a modular home factory that wants to continue to build single family homes will have to market to certain demographics in both the retail and builder markets.  Custom homes for the people looking for green, sustainable homes and affordable housing for tract builders are two markets that factories can own.  Private label manufacturing for national modular home retailers will also be a great market to go after. 

There will be changes to the factories sales and drafting departments.  A smaller, leaner sales department with highly skilled people working with developers, custom home builders and tract builders will emerge.  Drafting departments may soon see Architects and Engineers on board to help in sales and handle on the spot changes to large commercial projects. 

There are still going to be plenty of opportunities for small and medium size modular home factories and authorized builders, but both have to begin looking to hone their marketing and sales skills.  The day of a modular home builder trying to be everything to everyone is over.

1 comment:

Sheila said...

We will just have to see what will happen to housing industry with modular homes.
Please visit cost of modular homes for further information regarding modular homes.