to download the 2007 Builder 100 Top 35 Modular and Top 10 Manufactured lists. (PDF)
Larry Keener’s voice sounds worn over the phone, and you can almost picture him shaking his head back and forth as he discusses his firm’s 2007 performance.
“Our company made money in the current downturn right up until shipments crossed the 140,000 mark” in 2005, says Keener, CEO of Palm Harbor Homes, one of the country’s largest factory-built home manufacturers. “It’s really difficult to make it through eight or nine years of a down cycle and get hit at the very end. We’ve always built for the upper end of the market, but that market got so thin.”
It certainly did. Overall, shipments of manufactured HUD-code homes tumbled 18 percent in 2007, to 95,700 homes, according to the U.S. Census. But factory-built housing executives say that statistic fails to reveal how difficult a year it really has been. “There’s been increased emphasis on production of single-section versus multi-section homes,” says Craig Reynolds, CFO for American Homestar Corp. in League City, Texas. That means that the industry is building smaller homes compared to the past, so the drop in manufacturing activity has been even steeper than the shipments drop indicates. Many companies have closed factories until the situation improves.
The main culprits? The battered single-family housing market and the subprime lending crisis. Many markets report record-high inventories of homes for sale at ever-dropping prices, giving buyers plenty of affordable choices. The manufactured/modular industry has not been able to escape the credit crunch, either, despite working through its own chattel lending crisis and subsequent reforms earlier this decade. Modular appears to be the most affected because most modular homes are financed with traditional mortgages versus the chattel loans used for HUD-code homes.
Specialized markets have been affected, too. Palm Harbor’s active adult factory-built communities got hit when would-be buyers couldn’t (or wouldn’t) sell their existing homes, either for lack of buyers or because of softening home prices. “Our biggest drop off in business came in that market,” Keener says.