President Barack Obama's recently extended homebuyers' tax credit may help revive the flagging fortunes of the manufactured home industry -- and not a moment too soon.
According to the Manufactured Housing Institute, about 55,000 prefabricated homes will be sold in the U.S. in 2009, down from 81,000 a year earlier. Improvement could come in 2010 thanks to the tax credit, but expectations appear to be modest. The industry's woes extend beyond the current economic crisis, with one executive talking of "10 tough years."
"Is it going to triple the size of our industry?" asks Thayer Long, executive vice president of the MHI, in an interview. "No...[but] every little bit helps."
Under the terms of a bill Congress passed last week, an $8,000 first-time homebuyers tax credit, due to expire Nov. 30, was extended to April 30, 2010. In addition, people who have owned the homes where they live for at least five years are eligible for a new $6,500 tax credit for buying their next home.
Just how much the tax credit will help remains unclear. Manufactured homes appeal to many first-time buyers who are attracted by their low prices -- the average wholesale cost is $65,000 -- so an incentive of up to $8,000 can make a big difference. Unfortunately, credit remains very tight for the working-class people living in these communities -- never "trailer parks" -- who typically earn between $40,000 and $75,000 in annual household income. Foreclosures also continue to be a huge problem.
A Blind Eye in Washington
"I am not hearing that the tax credit program is blowing and going with my dealers in Louisiana," said Lenny Kopowski, director of legislative affairs at the Louisiana Manufactured Housing Association, in an interview. "The credit scoring and credit criteria have really stiffened up."
The crisis in low-price manufactured homes has largely gone unnoticed by the media because accurate information about rural housing markets is hard to come by. The government hasn't bothered to take it into account, according to the rural issues blog the Daily Yonder. Wall Street, though, has been well aware of the industry's woes.
Champion Enterprises (CHB) has seen its stock plummet more than 60% this year, now trading for 21 cents. Palm Harbor Homes (PHHM) is down more than 50%. Other makers have gone bankrupt. Cavco Industries (CVCO), number two in the business, has been the exception, gaining more than 19% this year, though sales in its fiscal second quarter fell 2% to $29.4 million. The company lost $163,000 in the quarter.
No "Huge Celebration" Yet
Even Clayton Homes, the largest builder of manufactured homes, which is owned by Warren Buffett's Berkshire Hathaway (BRK.A), hasn't been immune to the slowdown in the economy. Earlier this year, the Maryville, Tenn., company laid off 135 workers from its plant in Giles County, Tenn. Clayton Homes revenue declined 4% for the third quarter and $238 million, or 9%, for the first nine months compared to 2008, according to Berkshire's most recent 10-Q filed with the SEC.
"I don't think it's a time for huge celebration," says Chris Nicely, a spokesman for Clayton, in an interview with DailyFinance. The credit "will assist our sales," he says.
But Tim Williams, executive director of the Ohio Manufactured Homes Association, points out many would-be buyers are reluctant to enter the housing market because they are concerned about their jobs -- even with the incentives.
Manufactured homes may need more than tax breaks to spur sales