Palm Harbor Homes: Homebuilders Gravitate to Modular Homebuilding?

Modular homebuilders offer increasingly popular flex models, as do bigger custom builders like KB Homes (KBH). If green and thrift are the new trends, will factory-built homes become more popular than custom built? From modular home builder Palm Harbor Homes’ FQ309 conference call: (PHHM)

We are expanding our long-term flexible product introductions and time to completion efforts. Flexible products are recently introduced models that can be built from 1200 to 2400 square feet; built to either HUD-code or mod specifications, all designed with variety of exterior elevations and available by simply displaying one base model home.

We are now routinely delivering and completing complex HUD-code [HUD- Department of Housing and Urban Development - Ed.] and modular multi-section homes within 60 days of signed customer contract and loan closing. This increased speed has the twin benefits of more satisfied customers and decreased receivables.

Modular homes take market share from custom built:

Amid all this gloom we have seen what appears to be a positive trend for factory-built housing. From the mid 1970s to 1990, factory-built housing shipments averaged approximately 23% of the single-family housing starts in this country. From 1991 to 1998, factory-built housing shipments propelled by subprime channel financing, increased to approximately 28% average of single-family housing starts. From 2002 to 2006, when single-family housing starts were boosted by subprime mortgage financing, factory-built housing shipments declined dramatically and averaged only 11% of single-family housing starts.

Over the last 30 years, the average of factory-built housing shipments of total single-family starts is approximately 20% when residential financing is rational. In 2008, it looks like factory-built housing will increase to approximately 17% of single-family starts. In other words, factory-built housing may be in a recovery versus single-family site built starts and could be returning to its historical 20% share. If this analysis is correct, then factory-built housing should be looking at absolute increases in shipments as the housing industry recovers.

But for now, the outlook is still grim:

In getting ready for this call and looking at the stats for the latest three-month period is September, October and November for manufactured housing stats. There were only 816 houses shipped to Florida in those three months; 482 to Arizona and 577 to California. Those are numbers that frankly I've never thought and I suspect a lot of other people never thought they would ever see in those three big states.

We believe the downturn will last through most, if not all of 2009.

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Comments

[Todd_S:]

I have seen a lot of nice modern modular home designs over the past few years, many of which I'd consider living in. The problem that I have seen with modular or factory built homes is that oftentimes they aren't any cheaper than a stick built home or in some cases they are even more expensive.

If modular homes are going to be a bigger success, manufacturers need to make them affordable and come up with attractive modern designs that aren't too "modern." I'd also suggest staying as far away from the mobile home look as possible.

Jan 30 04:30 PM

[Stock Marke...:]

I have a modular and it makes a ton of sense. People still think of modular as a double wide with wheels on the side but I custom built mine through these guys..

www.zncustombuilding.c.../

Jan 30 09:14 PM