Video: ‘Mobile’ housing upwardly mobile?

By Jane Wells Correspondent
CNBC
updated 6/10/2005 6:25:05 PM ET 2005-06-10T22:25:05

When Chuck and Sandy Stanley retired recently to East Mesa, Ariz., they moved into a brand new home with lots of space, granite countertops and new appliances. You would have never guessed it was assembled in a factory.

"I would never in a million years have thought that we would be living in a manufactured home, to be perfectly honest with you,” Chuck Stanley told CNBC recently. “It’s the best thing we ever did."

The business of manufactured housing, or homes assembled in a factory and transported to a site, has long struggled with a “trailer trash” image. But today's manufactured homes can be 3,000 square feet in size, they can cost anything from $40,000 to $200,000 and they’re going into higher-end housing developments.

And where some see trailer trash, others — such as billionaire investor Warren Buffett — apparently see trailer treasure. Two years ago, Buffett’s Berkshire Hathaway holding company bought Clayton Homes of Maryville, Tenn., one of the biggest firms in the manufactured housing sector.

Over in Ocala, Fla., Nobility Homes — another manufactured housing company — this week reported record sales and earnings for its second quarter, with net income up nearly 50 percent from a year ago. The firm also said that in the current environment it expects its business to remain under pressure.

The manufactured housing business has certainly seen better days. A few years back, manufactured housing accounted for 24 percent of all new single family home starts, but since then that number has plummeted to 7 percent. No housing bubble here, to be sure, so why are big-money guys like Buffett moving in?

The sector has suffered as low interest rates allowed more people to buy traditional, site-built homes. And mortgages cost slightly higher for manufactured homes, since it costs the same to service the loans, but the principals are lower. On top of that, over-expansion and overly aggressive lending has led to a number of defaults, creating a glut of supply.

But that glut may now be starting to decrease. Manufactured home builder Cavco Industries, for example, has seen its backlog jump to 15 weeks, which is three times the norm. The company has seen its stock price jump more than 35 percent in the past year.

“Anything that can be done on site we can do at a factory, except we can do it more efficiently, and at half the cost,” notes Joe Stegmayer, chairman and CEO of Cavco.

Stegmayer says the industry has turned a corner, but it’s not bouncing back as quickly as some had predicted. He also says the biggest hurdle for the industry is the availability of financing, but Buffett has made a big difference in that area, buying Clayton Homes because of its lending arm.

Stegmayer predicts that just a little movement from site-built homes to manufactured homes will be enough to make a big difference for his company and others like it.

Cavco is reaching out to retirees and first-time homebuyers, and also to people with land who can’t get a contractor to build a single home. Stegmayer also says his firm is targeting people looking for vacation homes, and also immigrants who are not prejudiced against manufactured housing, which has improved dramatically in quality.

For many, interest rates need to move up 1.5 points to convince more homebuyers to buy more manufactured housing. But even as sales remain one third of what they were five years ago, with some companies still in the red, some have been busy buying up stocks in the sector.

“I think it's housing without the real estate,” said Mario Gabelli, chief investment officer at Gabelli Asset Management, noting that land is bought separately.

A shortage of land in many of the nation's hottest housing markets is a key factor driving up home prices, economists say.

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