(Source: Ed Marcum Knoxville News-Sentinel, Tenn. (MCT) — Like other sectors of the housing economy, manufactured home sales have been in a dive for several years, but lately there have been signs of life.
Berkshire Hathaway Inc., which owns Maryville-based Clayton Homes, released its second-quarter financial report Aug. 3, and one highlight was that Clayton’s pretax earnings had grown 45 percent over the previous year because of increased unit sales.
Clayton Homes officials declined to be interviewed for this story. Clayton Homes is the largest producer of manufactured homes in the nation and one of the largest employers in the Knoxville area with 2,354 employees, according to the 2012 Knoxville Business Journal Book of Lists.
Increased loan applications also point to improvement in the manufactured home market.
Knoxville-based 21st Mortgage Corp., which is owned by Clayton Homes, provides financing to manufactured-home buyers in 42 states, and Richard Ray, chief financial officer, said loan applications have been on the rise this year.
“In our operation, we have been having for the last nine months the biggest increase in loan applications for some time, and we are very happy,” he said. “The rate of increase has backed off a little, but we are still pleased.”
There are other positive signs.
“Definitely the industry is rebounding. Through the end of June, there was a 21 percent increase in terms of the number of homes shipped to dealers (nationally),” Ray said.
But, these improvements must be measured against the general trend of the industry, as outlined in statistics compiled by the Manufactured Housing Institute.
These show that the manufactured home industry thrived in Tennessee during the 1990s, but declined the next decade. Statewide, manufactured home production stood at 13,851 units in 1990 and steadily rose to a peak of 32,298 units in 1999. However, production dropped to 15,847 units in 2004 and fell to 6,908 units in 2011.
Manufactured home shipments in Tennessee followed a similar pattern. The number of units shipped grew from 6,941 in 1990 to 15,941 in 1996. However, that number had dropped to 5,187 units by 2003 and fell to 1,477 in 2011.
Nationally, manufactured home production went from a high of 372,843 units shipped in 1998 to 49,789 units in 2009. That rose to 51,606 units shipped in 2011.
In a recent quarterly filing with the Securities and Exchange Commission, Berkshire Hathaway said that Clayton Homes is holding steady in a tough environment.
“While Clayton Homes’ operating results continue to be negatively affected by the ongoing soft housing markets and the surplus of traditional single-family homes for sale, volumes of manufactured homes sold were higher in 2012 compared to 2011,” Berkshire Hathaway said. “Our manufactured housing programs continue to operate at a competitive disadvantage compared to traditional single-family housing markets, which have been receiving significant interest rate subsidies from the U.S. government through government agency insured mortgages. For the most part, these subsidies are not available to factory built homes. Nevertheless, Clayton Homes remains the largest manufactured housing business in the United States and we believe that it will continue to operate profitably, even under the prevailing conditions.”
Since the housing industry collapse in 2007, manufactured home producers have had to compete in a market flooded with site-built homes resulting from foreclosures, Ray said. But now, there are some indications people are moving to manufactured homes as an alternative to traditional homes.
Homeowners who owe more on their home than its value are looking for more affordable housing options such as rental homes, apartments or manufactured homes, said senior analyst Paul Adornato, who follows the manufactured homes industry for BMO Capital Markets.
“From the perspective of the companies that own mobile home parks, they are seeing an increased demand for their product as Americans downsize their current homes,” he said.
David A. Penn, director of the Business and Economic Research Center at Middle Tennessee State University, said higher lending standards have been driving people to multifamily housing. He suspects this could be drawing buyers to manufactured homes as well.
“Mortgage rates tend to be low now, but that helps only as long as you can qualify for a mortgage, depending on how much you want to borrow and the expense of the home,” he said.
Ray believes that improvement in the employment picture has been a factor in bringing in more loan applicants for manufactured homes. This makes him concerned that a rise in unemployment could stifle the trend, he said.
In a February letter to stockholders, Warren Buffett, Berkshire Hathaway board chairman, discussed Clayton Homes and the difficult times facing the housing industry.
“As is well-known, the U.S. went off the rails in its home-ownership and mortgage-lending policies, and for these mistakes our economy is now paying a huge price,” he wrote.
“At the core of the folly was the almost universal belief that the value of houses was certain to increase over time and that any dips would be inconsequential,” Buffett wrote.
Clayton Homes has been able to weather this period largely because it followed “old-fashioned” loan policies with monthly payments that had a sensible relationship to the borrowers’ income, he said. This helped Clayton Homes keep its losses to acceptable levels.
“It has done so even though many of our borrowers have had negative equity for some time,” he wrote.
©2012 the Knoxville News-Sentinel (Knoxville, Tenn.)
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