“You hate to win that way,” says one HUD-code producer, summarizing the sentiments of many manufacturers who saw a bounce in HUD-code unit orders in the aftermath of Hurricane Katrina. The FEMA orders for temporary housing totaled approximately 20,000, boosting manufacturers' numbers for 2005 to 146,735 units shipped, a 12.2 percent increase over last year.
But the temporary lift won't solve all of the manufactured industry's problems. A longer-term challenge is the growing shift by HUD-code producers into modular housing. “Many manufactured home producers are converting existing lines to modular or acquiring modular companies,” says Thayer Long, executive director of the Arlington, Va.–based National Modular Housing Council.
Champion Enterprises (18,989 HUD-code units in 2005), which markets modulars under its Genesis brand and other regional brands, reported that revenue from the sale of modular homes increased 78 percent during the fourth quarter of 2005, representing 24 percent of manufacturing revenue.
“We remain committed to the traditional manufactured business, and we hope that market returns, but we're not basing our strategy around that model,” says Kevin Flaherty, vice president of sales and marketing for Genesis Homes.
Patriot Homes, which builds about 2,300 homes a year, is also shifting to modular. “We're seeing an increase in modular in every quarter at every facility,” says John Carricarte, vice president of design and product development at the Elkhart, Ind.–based company.
Last year, Fleetwood Enterprises dipped a toe in the modular market with a couple hundred units (compared with 24,067 HUD-code units). “We are committed to continuing to compete in the HUD-code marketplace,” says John Riddle, national director of sales and marketing for the Riverside, Calif., company, although he notes that Fleetwood is taking “well-thought-out” steps into modular. Riddle says that a couple of factors will help the HUD-code side: “Retiring baby boomers are buying our homes. They don't run into the traditional financial challenges a first-time buyer does.”
And financing options are improving. Fleetwood's director of lending services, Kevin Finch, notes that though HUD-code buyers often have to pay higher interest rates than buyers of site-built homes, there is plenty of capital for those who have good credit. “The sins of the past get paid by performing loans,” he says. “If you look at the new lenders like U.S. Bank and Warren Buffet, they're holding the loans. So now we don't have to go to Wall Street and be victimized.”
The modular industry is also increasing its product offerings and expanding regionally in response to the entry of deep-pocketed HUD-code producers.
“The independent modular builders are moving away from plan books and into true customization,” says Fred Hallahan of Baltimore-based Hallahan Associates, a consultant to the modular industry. He adds that companies such as Ritz-Kraft and Excel Homes have become multiregional manufacturers to stay competitive.
“The entry of HUD-code players into the modular side will continue, and they will gain market share,” emphasizes Hallahan. “Couple that with the aggressiveness of Champion, which is also acquiring modular home manufacturers [such as New Era Building Systems in 2005] ... all of this lifts the industry.”
In response to the Gulf Coast devastation, producers are retooling models to show how their product can offer a cost-effective, attractive solution to replace more than 350,000 destroyed homes (and an untold number of damaged ones). Hallahan estimates that 4,000 modular units could be added to the Gulf Coast area each year, noting, “It's reasonable to say up to 16,000 will go in there.”
Tony Lucas, vice president of product development and design for Palm Harbor Homes in Addison, Texas, is impressed with the opportunities. “I can't get product out fast enough,” he says. Lucas estimates his company will ship about 500 homes a year to help the Archdiocese of New Orleans rebuild on the 6,000 lots it controls.
“The Gulf Coast is a major window of opportunity,” says Hallahan. “It's going to establish a presence of modular housing where it had little presence to begin with. With its design flexibility and efficiency, modular will not lose that foothold.”
2005 BUILDER 100 Top Modular Builders List (1-10) ( Download PDF )
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