The Factory Home : Manufactured Housing Flourishes in a Tough Real Estate Market
When Ken Steigall sold his modest mobile home in the Los Angeles suburb of Canyon Country, he hoped to clear enough profit to make a down payment on a traditional house.
But to his surprise, the $8,000 in sale proceeds wasn’t nearly enough for a down payment on a conventional home in the same area.
And even if Steigall had more cash, a friend in real estate explained, he probably wouldn’t be able to qualify for a loan based on the modest salary he earns as a pool cleaner.
So Steigall, 50, did what many home builders hope others will do: He made a 10% down payment on a new, $85,000 manufactured home in a master-planned community a few miles from his old trailer park.
“It looks and feels like a regular house, but it cost about half of what I would’ve had to pay to build it on-site,” Steigall said. “I got a top-quality home at a 50% discount.”
A growing number of developers who have traditionally built only conventional “sticks-and-bricks” projects are getting into the manufactured-housing business to control their costs and cater to the only segment of the industry that isn’t in the tank: low-cost homes.
“We’ve traditionally marketed our homes directly to consumers, but now home-building companies have become some of our best customers,” said Bob Henry of Santa Ana-based Golden West Homes, a big manufacturer that recently started a marketing program aimed at boosting its sales to developers.
Most of the builders diversifying into the manufactured-housing business are small- or mid-size companies that can adapt to market changes and retrain employees faster than their larger counterparts.
The concept is simple: Instead of buying a parcel and then hiring dozens of workers who will take months to build the tract, a builder simply erects a few of the factory-built houses on the site to use as models, then orders them from the manufacturer when a customer signs a sales contract.
The home is then shipped to the site, usually in three or four sections, with cabinets, floors, sinks and the like already installed.
The developer makes a profit by subdividing and then selling or leasing the parcels in the tract, and by adding a retail markup to the homes.
It can boost its profit even higher by acting as the general contractor in charge of assembling the home, a job that typically takes just three or four workers a mere week to complete.
“A conventional tract can take six months or a year to finish, and then there’s no guarantee that the homes won’t sit another six months or a year before somebody buys them,” said David Maddock of Palmdale-based American 21st Century Homes, which just started a 50-unit manufactured-housing tract in Palmdale. “You get killed by the carrying costs because you have to pay interest on the construction loan even though you’re not selling any homes.
“But with a manufactured-housing tract, you don’t have to pay for a home until it’s delivered, so carrying costs aren’t a big issue,” he said. “And since it only takes three weeks (for the manufacturer) to build it at the plant and another week for us to assemble it at the site, the buyer has a lot less time to get cold feet and back out of the deal.”
Builders see other advantages to selling factory-built homes. Since it’s the buyer’s responsibility to get a loan to finance the purchase, the builder doesn’t have to worry about finding a hard-to-get construction loan.
Computers allow developers to quickly customize a home to match a would-be buyer’s tastes, which makes marketing easier. Getting final approval from construction inspectors is also a snap because the homes already meet federal building standards when they leave the factory.
“And frankly, the homes that are made in a factory are better than the homes that are built on-site,” said Ed Smyth of Dana Point-based Smyth Construction, a company that is starting a 76-unit manufactured-housing tract near Palm Springs after building only conventional homes for four decades.
“There’s more quality control and uniformity than you have in stick-built housing,” he said. “You don’t have to worry about subcontractors cutting corners, and losses from on-site theft are virtually zero.”
Growing demand from builders such as Smyth has helped send sales of manufactured homes skyrocketing. Despite the recession, sales are up 19% from a year ago and are expected to top 200,000 units for the first time since 1988.
Conversely, sales of conventionally built homes are down 2% from a year ago.
David Leichey, a Palm Springs-based finance consultant who works with manufacturers and developers, said the industry got a big boost last year when the Federal National Mortgage Assn. began buying loans on manufactured homes from lenders.
The agency’s new program has allowed banks and S&Ls; to finance manufactured-home purchases with conventional 30-year mortgages at rates comparable to those for loans on stick-built houses.
Previously, most lenders offered only short-term loans at above-market rates to buyers who wanted a manufactured house.
“The high rate and short pay-back schedule boosted a buyer’s payments, which wiped out the advantage of the home’s lower price,” Leichey said.
Most manufacturers are relatively small and privately held. But the value of shares in the handful of publicly held companies has been rising in lock-step with the upswing in sales.
Shares in three of the four largest publicly held manufacturers--Clayton Homes, Fleetwood Enterprises and Oakwood Homes--have doubled over the last year. The fourth manufacturer, Skyline Corp., has seen its stock jump 50% in six months.
To keep sales growing, though, developers and manufacturers say they have to persuade the public that the factory-built homes of today are nothing like the poorly built, boxy mobile homes of 15 or 20 years ago.
“We’ve sort of got an identity crisis,” said Steve Truslow of Silvercrest/Western Homes Corp., a large manufacturer in Corona.
“We know that we’re putting out a quality product, but most people still confuse us with those companies that build those ugly mobile homes that are always getting blown away by tornadoes in Texas,” said Steve Truslow of Silvercrest/Western Homes Corp. in Corona.
California Home Construction Costs Although the per-square-foot cost of factory-built homes in California is rising, it’s still about 25% below the cost of a home built using conventional methods. The figures below do not include land costs, which vary widely. Square-foot costs Manufactured homes: 1988: $30.99 1989: $30.55 1990: $32.97 1991: $38.85 1992: $36.48 Site-built homes: 1988: $43.40 1989: $43.14 1990: $46.53 1991: $47.20 1992: $46.55 SOURCE: Berlin Research Corp. and Real Estate Research Council of Southern California
