Manufactured Housing Reader

What does the presence of manufactured housing tell us about America? What does it show us about a shelter? What makes an ideal home? How do those questions and their answers change over time?

These are some of the things that the curators of the Museum of Modern Art (MOMA) have attempted to ask in their latest exhibition. It is an exploration in to pre-fabricated houses.

“Home Delivery: Fabricating the Modern Dwelling” shows about 80 different homes or models of homes.

A set of pictures in the New York Times shows off a few of them. One home is made of cellophane with some girders and basic frames. The idea is to allow surroundings to change the home over time. The show also includes the System3 design, as well as microcompact homes, and a section on recovery work in New Orleans.

The show runs from July 20th to October 20th.

Palm Harbor (PHHM) gave a mixed assessment in its first quarter ‘09 filing, during a meeting today.  They reported revenues of $130 million (on target) but a drop from $143 million in the same quarter last year.  The favorable repurchase of some outstanding debt, coupled with operational profits, led to a quarterly profit of almost $2 million (7 cents per share).

Its a good story in the middle of a struggling industry, where sales are down in some of the key states (California, Florida, Arizona), and where financing markets are an unsettled problem.  To make it worse, the cost of commodities is also hurting.  Price increases in lumber, gypsum, and steel have all meant about a $1000 increase in production costs for each new Palm Harbor home, according to CEO Larry Keener.  Oh, and everyone has too much capacity and a limited amount of room to hold the swelling inventories of already built homes.

How has Palm Harbor managed to turn around its business in a struggling environment?

Palm Harbor indicated that it has strategic responses to the situation.  One, they are in the middle of a plan to cut costs.  Two, they want to find new markets.  Cutting costs is something that they have been doing a lot of already.  They have 20 fewer retail dealerships (company-owned and operated) than they did last year (just 87 now).  The shuttered 3 factories during the same period.

One area that they would like to reinvigorate are sales where land is utilized to help meet down payment requirements.  Land-in-lieu packages, not adequately provided by competitors or GSEs, were good business in the past, according to Palm Harbor.

Finding new markets might be a good idea.  Certainly, that is what is going on with the emphasis in military, education, and institutional clients at their competitors.  In fact, PHHM reported that they secured an $18 million military contract last year.

One analyst (Michael Chriodooloo) had some positive conclusions to draw from the quarter, noting that the basic financial plan was to make 15 percent at both the construction and retail stage of the business, and then to use that cash to buy back company debt at 58 cents on the dollar.

Then again, Palm Harbor is a different type of firm than say Champion or Fleetwood.  Their homes are much more expensive and come with a lot more “upfits” than their rivals.  A Palm Harbor home incorporates many interesting styling features.  Moreover, they own many of their retail stores.  They are able to skip the dealer and control a lot more of the aspects of the buying experience.

Still, its not an easy market.  CEO Keener says that “there are fewer consumers in everybody’s sales centres.”

Emerging Trends: Favorable for Manufactured Housing?

Palm Harbor sees changes in the near future in the larger housing market that are favorable for industry:

• Housing will not be an investment, as much as purely a good purchased for shelter.
• Customers will be attracted to smaller homes
• Customers will put a value upon Energy Star products.
• Down payments will be a requirement for financing.  Financing will be harder to come by, in general.
• Gas prices will shift demand to older, more centralized neighborhoods.  As a result, infill development will make up a greater portion of new construction.

Palm Harbor believes that all of these factors will drive customers back to manufactured housing.

The latest round of earnings reports by some of the leading builders of manufactured homes shows that many are  looking for new markets.  The environment is tough right now: shipments of HUD-Code homes continue to be way below historical norms.  Now, a larger crisis in lending is reducing the ability of buyers to finance new home purchases.

“It is now hard to imagine that the industry will surpass its 2007 shipment level of 95,800,” said William Griffiths, chair of Champion Enterprises, during the firm’s recent annual meeting.

That is bad, but what makes it worse is that there is an eery match between where the lending crisis is the worst and where manufactured housing typically makes its best sales.  States like Florida, California, Nevada, and Arizona have witnessed the lending environment tighten this year.  Those are places where manufactured housing is very popular, for a number of reasons.  They are good places for retirees.  They have expensive housing markets.  And, they are popular places to live.  A lot of people have been moving to these states.

Shipments at Champion, for example, are down by 30 percent in California, Arizona, and Florida.  Industry wide, only shipments to the eight Southeastern states are increasing. The South (including Texas) now accounts for 46.5 per cent of new shipments!

For Champion, that is bad news, because they only have one plant in that region.  Their firm has a much larger footprint (28 percent of capacity) in the three states mentioned at the top of this paragraph.

In the latest round of reports, though, manufacturers all seem to be hinting that they are looking beyond housing to keep afloat.  Fleetwood is looking to expand the focus it has on selling to military bases.  Champion is looking into two new segments - education and health care.  Their modular business in England (known as ModularUK) will begin working on products for prisons.

Amid a week of dramatic and often challenging news from the housing industry, Fleetwood Homes reported its best operating quarter in a while.  Its a good story that reflects some opportunity for manufactured housing.  I emphasize operations because the company still lost 2 cents a share, but much of that was outside of the nuts and bolts of making manufactured housing.

FLE’s 10-k, released last week, shows that this progress is actually the product of some conflicting forces.  While sales of RV’s are struggling due to high fuel prices, housing actually did well for the company. RV’s are still the bulk of business at Fleetwood, accounting for about 70 percent of sales in the last year.

The housing news was all the more positive given that some of the best markets for manufactured housing (Florida, Arizona, California, Nevada) happen to be at the epicenter of the larger lending crisis.  It is hard to get a loan in these states right now.

How bad were the results for RV’s?  Well, FLE saw its shipments of RV’s fall off by about 12,000 units compared to 2007.  Almost all of that drop took place within travel trailers.  This make sense, though.  It is not just a credit challenged market, but also a time when gas prices have finally reached a point where people are changing their consumption of fuel.  Travel trailers are in a perfect storm.

FLE increased its shipments of single wide manufactured homes for the quarter.  Fleetwood attributes the new growth to some trends that they believe will be long standing.  For one, more people are getting older.  They like smaller homes, with less maintenance.  The seniors are joined in this lifestyle mindset by another group of young people, who have decided that 1200 (or even 600) square feet is often preferable to 3200.  Lastly, there is still the challenge of finding an affordable home, a fact that remains in spite of the recent drop in home prices.  With wages stagnant for many, there is ongoing appeal to a low monthly mortgage payment.

Fleetwood acknowledged some challenges in the near future.  The industry witnessed an 18.4 percent decline in shipments in 2007, according to the report.  The Gulf region is slowing.  Still, there is hope for more sales to military institutions.

Fleetwood is entering a period of some risk.  They decided to issue 12 million new shares of stock on June 25th, at $3.40 per share.  In the short period since then, their shares have dropped as low as $1.99 and are currently near $2.50.  They remain the second largest producer of HUD code manufactured homes in the country.

The new survey on banks is out from JD Power & Associates.  The survey finds that people are growing increasingly unhappy about the level of service that they get at their bank.  The survey covered experiences last year, before the credit crisis really took over the attention of the public.  Presumably, that was also at a time when banks were operating at full speed.

The survey says that consumers resent high fees.  They also find it maddening that it can be so difficult to reach a real live person.

I thought of a few things that banks should do, for free.

Someone at your bank should be able to text or email a consumer when a check clears. This would cost little, but it would increase the certainty that a borrower feels about their funds.  Since banks are at liberty to process checks in a relatively large time frame, this is especially important.

They ought to offer live customer service from a person in the United States.  It is true that lower-cost services can be had overseas.  Banks should reach a higher standard, though, given that they tap so many government resources to provide their products.

Banks should provide free deposits to stored value cards on electronic transactions.  This would transform the “bottom of the pyramid” experience with regard to financial services.

Fraud protection should be for everyone. Right now, if you have VISA or Mastercard, you are entitled to some good protections on wrongful charges.  If you have another card, though, the Federal Reserve puts very few requirements in place to require more protections.

You should be able to choose to have paperless statements. Preferably, you should be able to say that you would like paperless statements on an account-by-account basis.  You should be able to say that you’d like to have your savings account delivered paperless, while still getting mail on your checking account.