Manufactured homes may need more than tax breaks to spur sales
Filed under: Columns, Economy, Berkshire Hathaway
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.
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Reader Comments (Page 1 of 1)
11-09-2009 @ 5:07PM
gumbo koontz said...
The manufactured housing industry suffer from poor public image not from shoddily built manufactued homes but from "trailer park image". The more successful part of the downtrodden manufactured industry goes chiefly to private land owners who want manufactured homes on their OWN PROPERTY NOT SOMEONE'S ELSE SPACE FOR RENT!@!! MH Park ScumLORDS LIKE Warren Buffet 's Clayton Homes still controls over 100,000 spaces in trashtrailerparks.org.....so call it if you will.. Well, funny, there is still nobody interested in developing land for MH buyers who DONT WANT TO PAY SPACERENT!@!! Get it, now, go back to your drawing boards and stop whining about no more 30% profits on space rents...MH builders and SCUMTRASHTRAILERPARKOWNERS are two very different bunches of people stuck together for the VERY WORST REASONS!! They are very STUPID !!
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11-09-2009 @ 7:06PM
joey bagodonuts said...
Get use to it, College Grads, Trailers are the Housing of the Future, this is HOPE and CHANGE, just not the change you were banking on. DEMAND GUARANTEES NEXT TIME YOU VOTE. TRAILER AND CLOWN CAR IS YOUR FUTURE.
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11-17-2009 @ 12:12PM
gumbo koontz said...
A few decades ago, there was a boom in "trailer park" developments simply because developers saw dollar signs with space rent income flowing while they hold the properties (trailer parks). They were counting heavily on kicking MH residents out easily when other developers want the properties (trailer parks) to develop condomiums or shopping malls. MH residents revolted with help of local politicans to prevent the trailer park lords from kicking them out without any compensation. Construction of new trailer parks or so called "leased communities" plummeted as developers saw greener pastures with storage parks. MH manufacturers long used to shipping MHs to trailer park lords suddenly found no customers left around , but they could have bought land themselves like regular homebuilding companies do all the times. They never came around to do that. They managed to find some infill lots in urban areas to ship MHs to and they made a lot of fanfare about it. Production of MHs plummeted from 350,000 in late 1990's to only (ouch!) 50,000 something this year. There is still people who are interested in buying MHs only for their own private properties or as granny flats. There is still a possibility that existing trailer parks can be converted into common grounds like condominiums and townhouses with monthly dues for maintenance, but there is no takers so far. New MHs are nice places to live, but those people who sell them do not have MH buyers' interest in heart. MH buyers pay higher interest rates than tradtional home mortgages and space rents are rising every year. Why cannot MH buyers own the common grounds in trailer parks or leased commuinities? This whole old scheme of yesteryear just dont make sense at all.
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