The Grissim Guides to Manufactured Homes and Land

The Grissim 2006 Report

Note: Annually at the beginning of the year I offer my assessment of the manufactured home landscape to help home shoppers better understand the market conditions they will face in the next 12 months. In addition, monthly during the year I provide word of recent industry developments on the News & Notes pages (e.g., mergers, court cases, new products) that may be helpful to consumers. I recommend browsing at least the previous six to eight months of postings. JG

The manufactured home buyer’s market place today

If you are just getting familiar with manufactured housing and are thinking of buying a HUD-code home, your interest is well-timed. The MH industry has finally emerged from a severe, painful downturn that began in late 1999 and lasted well into 2004. The 1990s boom that preceded that downturn is described in The Complete Buyer’s Guide to Manufactured Homes and Land, but the gist of the story is that during that decade easy credit and lax lending standards sparked tremendous growth—an average of 300,000-plus homes produced annually, sold through as many as 8,000 retailer sales centers (a.k.a. dealerships).

The party abruptly came to an end when hundreds of thousands of bad home loans began defaulting, triggering an avalanche of repossessions, huge losses, and a 65% industry contraction. The MH industry had no one but itself to blame. Today the marketplace has stabilized, the number of repossessions is back to a manageable number, the best-managed companies—and dealerships—have survived. As important, the lending environment, in particular home-only loans (otherwise known as chattel or personal property loans) is once again improving.

Site-built housing boom cools

There are now about 3,000 dealerships nationally, selling a total of slightly more than 130,000 homes annually. Measured growth is predicted. True, this total pales in comparison to the roughly 2 million conventional site-built homes built in 2005, but consider the mainstream housing industry has been on a five year boom, with last year’s single-family home housing starts the second highest since 1972.

Analysts expect the boom, especially in skyrocketing home prices, to cool off in the months ahead. Talk of the collapse of a perceived “housing bubble” has become less strident in 2006. Most economists think the housing market will slow, then slide into a relatively soft landing.

What does this mean for manufactured home shoppers? For one, with the average cost of a new single family site-built home now just under $227,000 (including land), a comparable manufactured home (also with land) can be purchased for significantly less. For another, that home can be ready for move-in far sooner, in some cases months sooner. True, these two advantages have long been associated with manufactured housing, but given the great improvements in the construction quality of many factory-built homes in the past decade, here in 2006 many of the best MH models can go toe-to-toe with their site-built competition and hold their own—and at less cost.

The challenge for home shoppers

On the other hand—and there’s no avoiding this— there are still a lot of MH builders out there whose products don’t even begin to approach the quality of an entry-level site-built home. And this contributes to the public’s perception that the MH industry as a whole is a provider of poorly constructed, unattractive “mobile homes” that are sold like cars, that don’t appreciate in value, and when placed in neighborhoods of site-built homes, contribute to lower property values. Truth to tell, there are regions of the U.S., parts of the Southeast, for example, where the facts support this perception. The challenge for the home shopper is to separate the wheat from the chaff, to identify amidst a broad range of offerings those home with the quality, value and price points that answer their needs—no easy task.

The 2006 landscape

While the MH marketplace has stabilized, there have also been some changes in the landscape that home shoppers should keep in mind:

Consolidation — As the MH industry began to emerge from the downturn, bigger players went on buying sprees. Clayton Homes, for example, after being purchased in 2004 by Berkshire Hathaway, the huge holding company managed by billionaire Warren Buffet, went on a buying spree, picking up Oakwood Homes and its stable of MH brands (Schult, Marlette and Golden West), followed in 2005 by the acquisition of Karsten Homes. Champion Enterprises, Inc. purchased New Era and its Castle Homes subsidiary. You can expect more of the same in 2006. In general, the consolidation has been positive so far, but if any one company becomes too dominant, reducing the competition to niche players, home shoppers will have fewer choices—never a good sign.

Lending environment — The old easy-credit days (at sub-prime rates) are long gone. Don’t expect their return, ever, but lenders are returning to the marketplace to offer financing, including chattel or home only loans, to creditworthy home buyers. Borrowing guidelines are more conservative and home buyers can anticipate loan applications will be scrupulously verified, but these are welcome signs of responsible lending. The MH industry has launched a self-policing initiative called Lending Best Practices (LBP), a program under which banks and finance companies voluntarily agree to follow strict lending guidelines designed to prevent fraud and predatory practices that hurt everyone, especially home buyers. This is a promising development.

Cost of homes — The median price of a manufactured home is currently at $62,000, about $10,000 more than at the start of the decade. Expect prices to ratchet up incrementally through 2009. In 2006 you can expect to pay on average $1,500-$2,000 in so-called “materials surcharges” periodically tacked on to base prices. The principal culprit: the rising price of oil, not only for shipping, but for a wide array of petrochemical products used in home building, e.g., adhesives, vinyl siding, plastics, fiberglass, acrylics; carpeting, fabrics, and laminate countertops. Unfortunately, you can also expect MH dealers to use the threat of upcoming materials surcharge announcements to pressure home buyers to signing purchase agreements to “lock in” the current price.

Delivery times — If you order your home from a factory with options and customization (called a retail sales order) the average time for the home to be built and delivered to your site is four-to-eight weeks. But in hot markets such as California and Florida, factories there have 10-14 week back logs. Some producers are backlogged six months or longer. Keep this in mind for project scheduling. In contrast, lot models purchased from a dealer are usually delivered to a site in three to four weeks following the close of a deal.

Sales activity - Dealers in hot market regions may be less inclined to surrender much on price during negotiations. The Northwest, Northeast, Midwest, and mid-Atlantic seaboard regions are experiencing steady, but not remarkable, sales activity. The Southeast in general is rebounding but the market for low- to mid-priced affordable housing is crowded, and informed home shoppers should be able to benefit. The same holds true for the South Central market, especially Texas, which has been slow to recover.

In sum, the above market conditions will remain into 2007, but given the disruptions already created by fluctuations in the world oil market and natural disasters such as Hurricanes Katrina and Rita, the market landscape can certainly change. But as it stands, this is a good time to take a close look at these remarkable factory-made homes.