The Grissim Guides to Manufactured Homes and Land

News & Notes Archive - May 2007

Finally, signs that the manufactured home industry has bottomed out. Will there be an up tick? What this means for home shoppers.

The latest monthly figures provided by the industry trade association, Manufactured Housing Institute, indicate that the grim slide that the industry has been in since 1998, when it peaked at 373,000 homes produced annually, continues. Shipments for last month were down 36% compared with April of 2006. At that rate of production, the total number of homes that will be shipped in 2007 will be not much over 91,000. That figure represents a 45-year low

The biggest declines over the past six months have been in Florida, California and Arizona, where sales have reflected the slumping market in mainstream homes. But amidst this bleak landscape, there are signs that the MH industry may at last be bottoming out. One large manufacturer, Champion Enterprises, Inc., reported last month that orders for its homes are up 60% from February. Elsewhere, retailers are seeing more visitor traffic and lenders have noted an up tick in loan applications, especially from qualified borrowers.

The reason for these developments? Most analysts point to lenders in the site-built market pulling back from aggressively courting borrowers with generous loan terms. Tightening loan standards has leveled the lending playing field. As a result, buyers who don’t meet higher credit standards are turning to manufactured housing because the product can deliver more bang for their loan dollar, at an over all lower total cost.

It’s too early to tell if these developments will lead to an up tick in MH production any time soon, but the good news for home shoppers is, MH retailers generally are experiencing lean times and they are very motivated to earn your business.

In addition, as reported in last month’s News & Notes, there are national lenders out there who offer financing for manufactured homes, including chattel or personal property loans on homes not tied to land. True, the days of no-down payment/ easy credit are history, but the lending environment for MH is much improved from as recently as two years ago. Tip: always try first to get a home loan from your local bank or credit union. They often have better interest rates. Plus, developing a good working relationship with your local lenders means they will work harder to help make a deal happen, and be willing to work with you if you hit a patch of financial thin ice.

Little known fact: ordering a new manufactured home is often more challenging than buying an existing site-built home

If you’ve ever looked for a “previously owned” home to buy (“an existing home” in Real Estate parlance), one thing you don’t have to worry about is having to make choices from a long list of construction features and specifications. All those choices have been made by the previous owner.

For example, these decisions could include carpet thickness, ceiling height, interior paint color, thickness of the dry wall, insulation, size of cabinets and kitchen sink, faucet fixtures, window characteristics, sky lights, roof pitch, quality of shingles, the floor layout and room sizes, even the brand of appliances. In short, what you see is what you get. That can simplify your purchase decision—either your like the complete package, or you don’t.

Compare that experience with ordering a new manufactured home. Once you’ve selected a model and a floor plan to your liking, you must then sit down and review a very long list of features and options and make many decisions, dozens of them. And to perform this task successfully you need to be knowledgeable about a great many construction features, including which ones are cheap and which are high end.

This can be a daunting, confusing task. It is certainly a challenge one does not encounter when looking to buy an existing home. This is where the Grissim guides really prove their worth. Both contain a three-page chart of construction features and specifications, 56 in all, plus notes, that help you with the decision making task. In addition, each of the 56 features has a construction quality rating on a 1-to-10 scale, enabling you to precisely determine the quality you want.

Moreover, you can use this chart to analyze any home model you’re considering. Just plug the home’s list of features into the chart and see what quality rating each has. You’ll quickly determine just how good that home’s quality is compared to the rest of the industry. For that matter, you can do the very same comparison with any home you’re looking at, even an existing site-built.

Interview: 15 minutes with...Doug Gorman

Note: In my role as an industry observer and consumer advocate I speak with people at all levels of the manufactured home industry (MH) to gain insights I share with my readers to help them be better informed. Some I have interviewed for a one-page column that runs in an industry trade publication. In return the magazine runs an ad for the Grissim Guides. No money changes hands. I insist on this. Aside from book sales, I neither solicit nor accept a dime from the industry, and my readers have my assurance I intend to keep it that way. Here’s this month’s interview:

Doug Gorman

Doug Gorman, owner Home-Mart MH dealership, Tulsa, OK

Who: President of Home-Mart, Inc, a Tulsa, Oklahoma retail sales center; member of HUD’s Manufactured Housing Consensus Committee; and a seven-time recipient of MHI’s Retailer of the Year award (the seventh received at last month’s MHI Expo in Las Vegas).

Background: Age 57, born in Oelwein, IA. At 9 moved to Smyrna, GA where his step-father, an electrical engineer for RCA, relocated. Attended U. of GA. While an undergrad, met and married wife Millie in ‘71. That year purchased a manufactured home, began working part time for the retailer who sold them their home—“I kept bringing referrals to the dealership and they said ‘You’re selling more homes than we are. Come work for us’(laughs). Finished college at GA State in ’74, BA in business (marketing), by which time he was managing a sales center for Indon Industries. Recruited that year by Redman Homes (Americus, GA) to develop from scratch a dealer network, working in wholesale sales until ’76 when he returned to Indon Industries, this time as regional manager of all north GA sales centers.

In ’77, bought a partnership in his first dealership, Cumberland Homes, in Marietta, GA, remaining there six years before accepting an offer from Palm Harbor to be VP of their modular home division (moving to Dallas, TX). His wife Millie was also hired as a Palm Harbor VP—“I believe we were the only husband-and-wife VP team in Palm Harbor history.” Two years later, Doug moved to a Palm Harbor sister company, Sunrizon Homes where for the next five years (’83-’88) managed the company’s retail division, splitting his work week between Dallas, Tulsa and Oklahoma City. In ’88, when the MH market tanked and Sunrizon closed, he worked briefly for Lender Services, Inc. overseeing the liquidation of repos before proposing leaving the company pay roll and opening a Tulsa, OK sales center to sell them himself. Lender Services agreed. Aided by a $25,000 loan, he opened Home-Mart in the fall of that year. Before the first year ended, Home-Mart obtained flooring and began offering new homes. Growth was steady. In ’98, at the height of the boom, Gorman’s staff (then numbering 35) sold 300 homes valued at $15 million. Today, with an average 25 home models on display, the Home-Mart remains one of the largest retailers in the U.S. Active in community affairs, Doug has received numerous awards, including the Tulsa Chamber of Commerce’s Small Businessperson of the year award in 2000. In ’04 he made an unsuccessful bid for a state senate seat (“I don’t know if I’ll try again. It’s hard to do that and run a business.”). Also very active in the MH industry, he has served on many task forces, and is currently Chair of the Manufactured Housing Education Institute (MHEI). The Gormans have two children, a daughter Stacie, 29 (and two grandchildren) and a son Mitch, 21, a freshman at U . of Oklahoma.

Q: You’re coming up on 20 years, surviving thick and thin. What’s your current picture?
A: Right now there are fifteen competitors within three miles. In 1995 there were only four. In ‘98 the total hit 20. But the current number is more than the market can support. Tulsa’s population is about 370,000, with our customer base located out to abut 125 miles.
Q: Do you see any trends?
A: We were surprised when we looked at last year’s numbers and discovered that sixty percent of our financed business was chattel, and that almost half our business was cash. Those trends won’t be the same for ’07 but we’re enjoying a substantial increase in business. Last year we grossed five million, and this year we’re on track to hit six million.
Q: Is the slump in the site-built housing market affecting you?
A: Yes. I see it as increasing our business. With the crash in sub-prime lending, people who can no longer qualify for site-built homes are having to look for a different, more affordable form of housing. And many are coming to us.
Q: Do you feel comfortable with what’s now available for chattel lending?
A: I do. The lenders are pretty reasonable. We do a significant amount of business with 21st., Triad, US Bank and Origen. We also work with San Antonio Credit Union. When I think back to say, 1993, when the only chattel lender was Green Tree with their ten percent down payment requirement, this seems like heaven.
Q: Your thoughts on a proposed a national ad campaign to promote MH?
A: I support the idea, with a contribution from the sale of every home to fund a campaign, but I don’t support an additional contribution to help fund a warranty program created to go with it. I have a problem with taking money from everyone’s till when I already have a program I’ve very satisfied with. Warranties should be left to the free market. Creating another warranty program won’t do anything if you don’t have people committed to taking care of customers. In the 30 years since I took my first marketing course, I’ve seen no change in that truth: take care of customers and they will find you, they’ll send referrals, they’ll bring them to you. We have people buying their second and third homes from us, sending their children to us. We’ve had people who hated the manufacturer of the first home they bought from us but they still come to us because we took care of them even if the manufacturer didn’t.
Q: Do you agree with former MHI president Chris Steinbert’s view that retailing best practices won’t get traction unless and until the manufacturer’s step up and take control of the sale and distribution of their homes?
A: I wouldn’t say ‘control.’ I’d use the word ‘align.’ Manufactures must align with like-minded retailers who are committed to taking care of customers. I’ve been on installation task forces where three or four heads of manufacturers were on committees, and I remember asking one of them, ‘Why are we having this meeting? And he answered, ‘Well, we need to make sure houses are set up properly.’ And I’d say, “Well, can’t you cancel a retailer who’s setting up the houses incorrectly?” And he replied “That’s not realistic.’ And I answered ‘Why isn’t it? Why are you selling houses to people who aren’t setting them up right?’ So, I would agree with Chris, but I’d word it that manufacturers must align with retailers who are equally committed to customer service.