A Prefabricated Future?

The housing crisis is far from over, but there are some sectors in the industry that could emerge stronger when it ends. Buyers are downsizing and homebuilders like KB Homes (KBH) are focusing on smaller floor plans. Homebuyers are looking for lower expenses, easier upkeep and more environmentally-friendly solutions. Even luxury ‘McMansion’ builder Toll Brothers (TOL) is offering smaller home models to meet market challenges.

In the same vein, it could well be that manufactured housing firms like Champion Enterprises (CHB), Fleetwood Enterprises (FLE), Palm Harbor Homes (PHHM) and industry-related firms like Patrick Industries (PATK) will greatly benefit from the current downturn. Patrick manufactures and distributes parts for prefabs and recreational vehicles.

Shares in manufactured housing firms are down dramatically this year, and these firms are struggling along with the rest of the homebuilding industry. Fleetwood announced several plant closings this week. But manufactured housing is more environmentally-friendly. Their construction requires less materials, overhead and staff to manufacture. One article I read recently said the whole austerity thing could catch on as the new chic in these troubled times.

From Champion Enterprises’ Q308 conference call

The housing markets will eventually recover and affordable housing alternatives, which we have, will be more important in this next cycle as we compete on a level playing field with the site built. In the meantime, we will continue to develop alternate products in local markets with particular emphasis on multi-family and commercial project. In addition, while no longer at their peak levels of last year, our business units in Canada and the UK are solidly profitable, cash flow-positive and have not, and are not likely to see, the level of deterioration that we are experiencing in the US.

Champion executives also discuss the situation overseas:

In Canada, volume is starting to weaken somewhat from their peak levels of last year but this market is still very robust. Over 4400 units were shipped in the four western provinces in 2007 compared to a 20-year shipment average of 3100 units. Through the first nine months of this year, 3350 have been shipped and that in 2008 is expected to have the highest shipment level in over 25 years. Margins remained strong, aided by a lower Canadian dollar which is making this a less attractive market for US producers. Canada will continue to be our most attractive market for the foreseeable future.’

UK is struggling, but there will always be a market for manufactured housing:

The UK is also being hit hard by the financial crisis which is causing a slowdown in public spending. We have been notified that delays in several projects which will further depress revenues over the next three quarters. We have seen no cancellations, however, and the backlog remains strong at $235 million, below 27% of this backlog will not ship until after 2009. Even with the delays in public spending, the underlying demand for military accommodations, school, prisons, healthcare facilities, and student housing has not changed and will rebound when financing becomes available.

Comments

[smlcap:]

For the sake of the consumer, I hope that prefab is not the future of single family housing. Manufactured homes are junk. Anyone who thinks differently is fooling themselves. Compared to a site built home, they are junk. They even depreciate in value. Try to get a mortgage for a manufactured home (AKA "trailer"), or a re-fi. Good luck. Try to get insurance in hurricane or storm prone regions. Good luck. I know from personal experience. I owned a new Palm Harbor home/trailer. Garbage. I have a shed that is better constructed than my Palm Harbor home. Palm Harbor is considered top of the line, and it is junk. Imagine what the mid line and bottom line homes are like. Formaldehyde. They are loaded with odorless but toxic formaldehyde.
Everything inside the home turns black from formaldehyde gases leaching from the cheap construction materials used trailers like Palm Harbor Homes. That same black residue sticks nicely to the human lungs as well. The Chinese give us melamine to swallow, the manufactured home/trailer industry gives us formaldehyde to breathe.

2008 Nov 27 09:05 AM

[Jake2:]

The article: Pie in the Sky. Speculation. Reader, pass by.

2008 Nov 28 01:25 AM

[dhkystud:]

The manufactured and modular business will take along time to recover. The HUD code homes sold for parks can't get financing and the IRC modular homes are still overpriced, in comparison to the resale market. Champion looks like it could go BK any day. No capital and limited working capital. They were really irresponsible to have purchased SRI in Canada when the dollar was at par to the Canadian, and when the market in Alberta had clearly already had peaked. Poor management.

2008 Nov 28 03:37 PM

[radd57:]

Until they quit building over priced homes, more forclosures are ahead. All these 200 and 300 thousand dollar new homes and up are sitting vacant now for the last year.
The average family today needs a modest affordable built home , fitting the minimum wage or middle class income.
The problem with the whole system of real estate agents,brokers,banks and buliders is geared for the upper scale earners . Getting the majority of people to buy what they can't afford. A town just 50 miles from here, there supply and demand is geared for the minimum wage earner and the homes there are being built for under 150,000 . I don't see them sitting vacant or flooded with forclosures. It is possible, just quit building for the rich and famous all over.

2008 Nov 30 02:36 AM

[finishwerks:]

Dear Smlcap:

Either you got really screwed or someone peed in your Cheerios this morning. Because you're blather is mostly baseless. I've been building mod for years now, and every inspector (yes - they have engineering degrees... do you?) tell me the same thing: better built than stick. In fact, little in your comment rings true:
+ I get financing all day long in the Balt/WashingtonDC corridor
+ In "storm prone" arenas like the ones Katrina/Rita wasted, modular homes stood strong while stick-builts blew away (google: modular homes hurricane Katrina)
+ Formaldehyde and VOC's are a function of choice... if you want ZERO VOC's all you have to do is ask for it; all builders use builder grade materials until you spec otherwise

I'll agree with you that there was a big problem with formaldehyde in TRAILERS, but I believe your ignorance got in the way of making the distinction between HUD code trailers and IRC code modular custom homes.

Henry Ford automated and brought economies to automobile manufacturing that no one can dispute. Homes will go this way too. Unless you still believe that having a bunch of us "fools" building and fouling up your home one stick at a time outside in lousy weather is the way to go... otherwise, enjoy your cheerios.


On Nov 27 09:05 AM smlcap wrote:

> For the sake of the consumer, I hope that prefab is not the future
> of single family housing. Manufactured homes are junk. Anyone who
> thinks differently is fooling themselves. Compared to a site built
> home, they are junk. They even depreciate in value. Try to get a
> mortgage for a manufactured home (AKA "trailer"), or a re-fi. Good
> luck. Try to get insurance in hurricane or storm prone regions. Good
> luck. I know from personal experience. I owned a new Palm Harbor
> home/trailer. Garbage. I have a shed that is better constructed than
> my Palm Harbor home. Palm Harbor is considered top of the line, and
> it is junk. Imagine what the mid line and bottom line homes are like.
> Formaldehyde. They are loaded with odorless but toxic formaldehyde.

>
> Everything inside the home turns black from formaldehyde gases leaching
> from the cheap construction materials used trailers like Palm Harbor
> Homes. That same black residue sticks nicely to the human lungs as
> well. The Chinese give us melamine to swallow, the manufactured home/trailer
> industry gives us formaldehyde to breathe.

2008 Dec 01 02:47 PM

[REITBull:]

User310318,

I was about to respond the same way to smlcap.

Many people mistakenly think that modular homes are trailers. They are not. Modular homes are normal homes constructed in large wharehouses as modules. The modules are shipped to the construction site and assembled on a concrete foundation. A passerby would not be able to tell the difference between a stick built and a modular home and has no effect on financing.

2008 Dec 01 08:38 PM

[phhm:]

This is for smlcap--
Your comments on Palm Harbor Homes are completely erroneous. I have been selling these homes for approx. 8 years. Did you know we are a certified green builder, and have the best energy-efficient home in the industry. Also we have no formaldehyde in our floors because they are OSB and not cresdeck, particle board or fiber board. When a manufactured home is installed on a foundation on site, the home becomes real estate and not a mfg. home no longer. We finance Palm Harbor Homes every day with major banks just like a site-built home. You better get your facts straight before you start going off like a cannon with no solidity to your statements. I could go on and on about the quality of our homes, but you probably wouldn't understand.

2008 Dec 06 02:53 PM

[mkreisel:]

Clayton Homes, backed by Berkshire Hathaway's AAA rating, is going to run those CCC rated CHB and FLE out of business.

2008 Dec 08 03:54 AM

[mfghomeeng:]

Simlcap,
ordinarily I would pass such comments by, but, you need to get educated before you ramble on how mfg homes are junk. I have been in the mfg housing business for 17 years and site built prior to this for 7 years. I have been on both sides of the fence and experienced the evolution of the mfg/modualr home industry. They use the SAME materials as site built. They are constructed VERY well. To put this in perspective how about trying to run a site built home down the freeway for 16 hours and throughout this process going through the equiv. of an 8.5 earthquake, AND, arriving at its final destination in with everything in tact! They are also the future for green building. I could go on like PHHM but you have a lot of homework to do.


On Nov 27 09:05 AM smlcap wrote:

> For the sake of the consumer, I hope that prefab is not the future
> of single family housing. Manufactured homes are junk. Anyone who
> thinks differently is fooling themselves. Compared to a site built
> home, they are junk. They even depreciate in value. Try to get a
> mortgage for a manufactured home (AKA "trailer"), or a re-fi. Good
> luck. Try to get insurance in hurricane or storm prone regions. Good
> luck. I know from personal experience. I owned a new Palm Harbor
> home/trailer. Garbage. I have a shed that is better constructed than
> my Palm Harbor home. Palm Harbor is considered top of the line, and
> it is junk. Imagine what the mid line and bottom line homes are like.
> Formaldehyde. They are loaded with odorless but toxic formaldehyde.
>
> Everything inside the home turns black from formaldehyde gases leaching
> from the cheap construction materials used trailers like Palm Harbor
> Homes. That same black residue sticks nicely to the human lungs as
> well. The Chinese give us melamine to swallow, the manufactured home/trailer
> industry gives us formaldehyde to breathe.

Jan 31 10:57 AM