Forecast & Trends—July/August 2003

Modular Home Sales Soar 11% In 2002
Industry grabs more market share in nearly every region, thanks to improved designs and growing consumer awareness of its quality.

The good news is that modular home construction is reaching new heights. The bad news is if your particular boat isn’t rising on the same tide, it’s likely you need to rethink your business plan because you are loosing customers to a competitor.

That’s among the conclusions from a report from an industry analyst that says modular home production reached historic highs in 2002, growing a stunning 11% from the previous year to more than 36,000 homes nationwide. This compares to an increase of 8% growth in all new homes sales nationwide, the overwhelming majority of which are site built.

“The total modular volume for 2002 is very impressive indeed and it’s a good sign for the industry,â€? says Fred C. Hallahan, principal of Hallahan Associates (Baltimore, MD), which compiles state-by-state and county-by-county statistics annually. “What the industry has been doing for the last four or five years is hovering right around that 32 thousand range. This has been the case since 1998. But now, with this bump up to 36,000, it’s clear the industry has broken out of that model. And I see continued strong growth for this industry as a whole.â€?

The Northeast the Midwest and South Atlantic states continue to be the most active modular building regions, with several states showing increased market share. Moreover, in numerous states there is a shakeup among manufacturers as some longtime producers are loosing market share to newcomers with more aggressive designs and builder recruitment efforts.

North Carolina Tops
For the fifth year in a row, North Carolina leads the nation in modular homes being set in that state (see sidebar). Rounding out the top three states for modular homes are New York in second place and Michigan in third, which changed rankings from the previous year. “In New York alone, modulars are up 5% from the previous year,â€? Hallahan says.

Other Northeastern states are up or holding consistent with years past. Sales to New Jersey buyers, however, are down slightly.

In contrast, many of the New England states are seeing huge increases, as much as 20% in some states. “Maine in particular is seeing some very strong increases,â€? Hallahan says. Domestic producers are creating most of these New England homes, but increasingly builders and buyers are importing from Canada to take advantage of the strong U.S. dollar and its purchasing power against the loon. Canadian imports rose 25% in a single year, from 800 homes to more than a 1,000, Hallahan says. “And the majority of them were destined for the New England states.â€?

Another region seeing comparable growth is the area of North and South Carolina, and Virginia, Hallahan says. The South Atlantic region has grown from 26% of all modular housing activity to 28%.

“Virginia is up 19% and South Carolina is up 12%. I see over time that this region will make up 6% of the market share, whereas currently it’s about 3%. If you keep looking south along the coastline, we’re seeing growing modular sales in nearly every state. The industry is definitely moving south, following home buying trends. It’s particularly remarkable in a state such as South Carolina, where there isn’t a local presence there by manufacturers. But years ago that same argument was made for North Carolina and you see where that state is now. I think that the potential market for modulars in the southern coastal states is enormous.â€?

The Great Lakes region is still strong at 22% of the market, with the same going for the Midwest at 10%. South Central is at five percent, a one-point up-tick from the previous year. The West is still in its infancy in many respects, with five percent of all modular sales.

What’s fueling this growth? Low interest rates haven’t hurt, nor has the growing consumer awareness of the quality inherent in factory construction and its advantages over the general chaos of site building and its vulnerability to weather, thieves and poor workmanship.

But the two factors driving much of this growth in the modular market, Hallahan says, are the conversion of HUD-code manufacturers to the modular building system and the second is modular manufacturers increasingly investing in designs and architectural features that match or even beat site builders for curb appeal.

Buyers are often choosing to he modular building system over more conventional construction because they have more choices in options and amenities than many production builders, who may only offer five or six upgrades. This allows independent small volume builders using this system to better compete with production developers on a host of issues, from cycle time to design, Hallahan says.

“I see more and more companies seeing success by targeting more affluent buyers, those that are above the median household income,â€? he says. As a result, modular homes are typically larger on a per square foot basis, echoing what is happening in site building as well.

To The Max
What’s the maximum market share of the modular building system can capture in all new housing starts? Hallahan says the industry will max out at six to eight percent of all housing starts. “That’s obtainable, which means there is significant room for growth yet for this industry.â€?

Hallahan & Associates offers a state-by-state report on modular activity for $150 per state for all 48 continental states. Modular information on consumption, market share and major
manufacturers from the early 1990s through 2001 is presented graphically. Details 410-296-1199.

Top Ten States For Modular Home Sets

  1. North Carolina
  2. New York
  3. Michigan
  4. Pennsylvania
  5. Virginia
  6. Wisconsin
  7. Ohio
  8. Massachusetts
  9. New Jersey
  10. Minnesota

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