Aside from rising interest rates, the macro market dynamics have generally provided a favorable backdrop for manufactured housing. Simply, there is tremendous demand for affordable housing and modern manufactured homes offer a great value for quality equation, often priced up to 50% lower per square foot than traditional site-built homes.
Over the past year, manufactured homes have made up over 10% of annual new home starts, in part because the total volume of new home starts has fallen. That being said, rising interest rates have begun to impact production of manufactured homes. So what’s the market set up for 2024?
Development projects have seen a bit of a slowdown in the second half of 2023 as interest rates and construction costs have cut into many developers’ projections. We’ve been tracking well over 100 developments across the country in various stages of approval, construction, and lease-up that has potential to bring over 40,000 new lots of supply over the next decade. We continue to stay in contact with many developers on their issues and concerns, as well as lessons learned.
Here’s what’s on our radar as 2024 comes into focus:
1. Construction Costs:
After 2 years of double digit growth, residential construction costs went up by approximately 3% to 4% in 2023. We’re looking for a bigger spread of savings in manufactured housing (which is currently approximately 50%) which makes the value proposition even stronger.
2. Site Costs:
Land costs have seen a bit of a drop as other costs have risen . With most groups solving to a needed Yield on Cost, how much they can pay for the land has come down.
3. Interest Rates:
The market believes that interest rates peaked in October 2023. Should interest rates fall back down, that can unlock additional projects. Construction financing was a major factor limiting projects in 2023, the market is hoping for additional capital to free up moving into 2024.
4. Home Sales:
Selling homes has proven to be one of the hardest aspects to many of the projects. Home shipments have become much easier to come by, but rising chattel rates and loan approvals have limited the buyer pools.
New developments have proven to be challenging to get approved in many states across the country, and forced many projects to look outside city limits to get things accomplished. We believe that with every successful project, comes a shining new example of affordable housing that can be taken to the next city, county, and state.
In today’s market it is imperative that owners contemplating a sale or simply seeking to understand the complex Manufactured Housing landscape have an advantage. SkyView Advisors has the experience and expertise to provide that advantage. Our objective is to provide uncompromising personal service to every client, every time. Our goal is total reliability and producing the optimal results in every transaction.