Friday, April 17, 2015

Modular Home Construction Kicking Open the Door for Many Small Builders

Several years of production deficits during the housing downturn resulted in a limited supply of both rental and new homes in the country. At present, a shortage of buildable lots, skilled labor and available capital for smaller builders are limiting home production, thereby lowering the inventory of homes, both new and existing.

New homes inventory for sale was 210,000 units at the end of February. This is just 4.7-month of new home supply, down from the January levels and also the lowest level since June 2013. The supply of existing homes is also tight, with an available supply of just 4.6 months. Analysts expect prices to flare up if the supply picture does not improve.

Labor, Land and Material Costs are at the heart of the problem. 

Rising building materials and labor costs are threatening margins as they limit homebuilders' pricing power. Both labor and construction material costs are rising proportionally with increasing housing starts, and there could be significant inflation going forward. This could eat into site builder’s margins considering that home price increases are moderating. 

The obvious answer to this situation is modular home construction. Not only are factories, especially in the Mid-Atlantic region, hiring and producing homes at a near capacity rate, the number of large, completely custom homes are increasing. Modular home builders are spreading their wings with confidence that modular factories can build just about anything their customers can dream of building. 

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