Berkshire Hathaway's Clayton Homes' i-house Faces Selling Issues

 |  Includes: BRK.A, BRK.B
by: The Rational Walk

Click to enlargeClayton Homes, a subsidiary of Berkshire Hathaway (NYSE:BRK.A), introduced a novel concept in 2008 intended to appeal to a wider demographic than the traditional buyers of manufactured and modular homes. The Clayton i-house incorporates numerous upscale design features and energy efficient construction practices at a starting price of $75,000.

Manufactured Housing Facing Headwinds

Clayton homes is the largest company in the manufactured housing industry but overall industry sales have declined precipitously in recent years. In 1998, industry unit sales hit a peak of over 372,000 units but declined to only 60,000 units in 2009. A combination of the overall decline in the housing market, deceptive lending practices by many in the industry (but not by Clayton), and government policies that result in higher interest rates for buyers of factory built housing have all been significant factors. According to the Knoxville News Sentinel, Clayton has only sold twenty i-house units since the product’s introduction in 2008. For more background information on Clayton and other Berkshire subsidiaries, please refer to The Rational Walk’s 2010 Berkshire Hathaway Briefing Book.

High End Price

Part of the problem with the i-house appears to be that it is priced at a much higher level than other Clayton Homes when one looks at the cost per square foot. The entry level 723 square foot i-house has a base price of $74,900 which works out to almost $104/square foot. The larger 1023 square foot model is listed at a base price of $93,300, or $91/square foot. In contrast, the Southern Sizzler home, pictured right, can be configured at 1966 square feet and ranges between $74,000 and $106,000. This works out to approximately $38 to $54/square foot. The i-house clearly has high end features that should appeal to environmentally conscious customers, but how many are willing to pay more than double the cost per square foot?

Enter the e Home

In late 2009, Clayton introduced a new model named the e home which appears to be an attempt to appeal to buyers who may be interested in the i-house but balk at the high price compared to other factory built homes. The e home starts at $42,135 for a 900 square foot model which is much more in line with traditional manufactured homes. However, the product includes many features that should appeal either to environmentalists or simply those who are looking for low ongoing utility costs. The e home appears more like a traditional manufactured home when compared to the i-house but the price may convince many buyers to compromise on style.

Disclosure: The author owns shares of Berkshire Hathaway.