Tariffs & Modular Housing

Happy Friday, Dwellers! Welcome to another edition of Dwellings Digest, a realtor and investor driven newsletter simplifying real estate, exploring the economy-stock-real estate link, adding a fun twist with niche topics and more. Enjoy!

Quote of the day - "The future of housing isn’t just built—it’s reimagined, where innovation meets affordability."

In today’s edition - From tariff-driven shifts in U.S. manufacturing to modular homes redefining multifamily housing, this edition covers the trends shaping real estate in 2024. Dive into November’s housing slowdown, rising inventory, and affordability challenges, plus modular construction's efficiency gains.

If you missed yesterday’s newsletter, click here

Rates & REITS

Average going rates as of Dec 5 2024

New? Join our newsletter – no cost!

🏛️ Economic & Market Sentiment

US Manufacturing Struggles Amid Tariff Uncertainty

1. Improvement but Still in Contraction

• The ISM manufacturing index rose to 48.4 in November (up from 46.5 in October), beating expectations of 47.5 but remaining below the critical 50 breakeven level.

• New orders climbed above 50 for the first time since March, potentially due to post-election clarity, but production (46.8) and employment (48.1) continue to lag.

2. Tariff Turmoil Adds Pressure

• Ongoing tariff uncertainty disrupts supply chains and hinders planning, as tariffs are increasingly tied to broader political goals, such as immigration and defense.

• While domestic manufacturers benefit from higher prices for foreign goods, foreign reprisals and supply chain disruptions offset these gains, keeping activity subdued.

3. Limited Optimism

• Prices paid dropped to 50.3 (from 54.8), signaling relief from soft energy costs, but long-term recovery depends on clarity in the trading environment.

The manufacturing sector faces ongoing challenges, with tariff-driven uncertainties overshadowing modest gains and leaving growth prospects muted for now.

🎢 Impact on Real Estate

Empty Nesters Unlikely to Solve Housing Affordability

1. Mismatch Between Supply and Demand

• In 2022, 16% of U.S. households were empty nests, down from 17% pre-pandemic, totaling 20.9 million households.

• These households are concentrated in affordable Midwest and Southern markets like Pittsburgh (22% empty nests) and Cleveland (20%).

• Expensive coastal markets like Austin and Seattle have far fewer empty nest households, limiting their impact on housing supply in high-demand areas.

2. Generational and Geographic Divide

• Younger buyers gravitate toward job-rich metros like Austin, Denver, and Seattle, where less than 16% of households are empty nests.

• Midwest regions with a higher share of empty nesters lack the job opportunities and amenities that attract younger generations, making migration unlikely.

3. Focus on New Construction

• Denser, newly built housing remains the best tool for addressing affordability, especially in restricted markets.

• Policies like down payment assistance and easing land use restrictions could improve access to homeownership.

Takeaway: While the number of empty nest households exceeds families in need by 2.6 times, their geographic distribution means they won't significantly alleviate affordability issues in high-demand markets. Expansion in new housing supply is critical.

🎙️ RE Spotlight

Key Takeaways from November’s Residential Real Estate Market

1. Slowest November in Five Years

• Homes stayed on the market for an average of 62 days, 11 days longer than last year, marking the slowest November since 2018.

• High mortgage rates, nearing 7%, significantly reduced buyer activity, with many budget-conscious buyers stepping back.

2. Housing Inventory Hits New Highs

• Active listings surged 26.2% year-over-year, reaching their highest levels since December 2019.

• The South led the increase with a 34.8% jump, while the West followed at 29.2%. Major metros like San Diego (+52.5%), Miami (+50.9%), and Denver (+50.7%) saw the largest inventory growth.

3. Prices and Affordability Trends

• Median home prices fell 0.7% YoY, settling at $416,880, but median price per square foot rose 1.6%, reflecting more affordable, smaller homes entering the market.

• Sellers are becoming cautious, with only 16.7% of listings undergoing price cuts, down from 18% last year.

Outlook: Buyers gain leverage with rising inventory and longer market times, but high mortgage rates continue to limit affordability, particularly for new listings.

🏕️ Niche-RE

America’s Biggest Apartment Owner Takes a Leap Into Modular Homes

1. Greystar Leads Modular Expansion in the U.S.

• Ltd. Findlay, Greystar’s six-building modular apartment complex near Pittsburgh, offers 312 units and was built 40% faster with 90% less waste than traditional projects.

• The development, part of Greystar’s modular pipeline, highlights scalability as a solution to housing shortages and rising construction costs.

2. Modular Construction Gains Market Traction

• Modular’s U.S. market share tripled from 2% in 2015 to 6.6% in 2023 (Modular Building Institute).

• Cost savings average 5-10%, and global modular revenues could hit $1.1 trillion by 2040 (McKinsey).

• Efficiency in labor and materials positions modular as a viable alternative, particularly amid workforce and supply chain challenges.

3. Challenges and Opportunities in Modular Development

• Regulatory hurdles, lender skepticism, and high transport costs remain key barriers. Greystar’s Knox factory model addresses financing and proximity constraints.

• Industry groups like the Modular Building Institute push for universal standards, with only five states adopting modular-specific codes so far.

Outlook: Modular housing is evolving from niche to necessity, driven by cost efficiency, speed, and rising demand for innovative housing solutions.

🖼️ Chart-Tastic

And…that's a wrap on this edition!

Got questions or feedback? write to us [email protected] - we'd love to hear from you.