Manufactured Housing Industry Calls for Industry-wide Council to Create Guidelines

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Manufactured Housing industry calls for the formation of an industry-wide council with representatives from the five elements that make the industry successful: park owners, lenders, manufacturers, dealers, and consumers to formulate a set of creative guidelines upon which all elements can agree and act upon to lead the industry toward profitability.

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"How to Deal with the Challenges of Empty Spaces, Repos, Park Owned and Abandoned Homes" was the topic of the Manufactured Housing Educational Trust ("MHeT") Breakfast Forum hosted by Deann Pancheri, President of Advantage Management, Inc. and New Image Homes, on January 27, 2010. Over seventy attendees heard presentations and joined in the discussion focusing on the question: "What we can do to work together and get through these tough times?" The presentations centered on the five elements that make our industry successful: park owners, lenders, manufacturers, dealers, and consumers. The presentations were very thought provoking and painted a "hard facts" picture of where the industry is today    

Pat Fleming, President of Factory Housing (Park Owner, Dealer and Author), with 37 years of experience, was the first speaker. He talked about how foreclosures, unemployment, fewer lenders, tighter credit and competitive prices between manufactured housing, condos and site built homes all have negatively impacted our consumer base. He discussed the disappearance of dealers and how major lenders have pulled credit needed to buy inventory and how overhead, lot rents and carrying costs, and lack of sales and consumer traffic are forcing dealers out of business.    

Responding to the question, "Where is our industry headed, and what will be the outcome if all five elements don't work together," he replied, "We have already lost 155 (CA) dealers in the past two years. Without dealers to advertise and promote parks there will be less turnover, higher vacancy rates and more lender repossessions because fewer dealers will be showing and selling the homes. We have lost major manufacturers, and the lack of demand for materials is forcing suppliers to downsize or quit, which in turn drives up material and home prices.

Pat noted that shipments were down 87.4% between 2005 and 2009 in California home. Retail transactions awere down 77.2% for the same period, and the forecast for manufactured home shipments in all of California for 2010 is projected at only 1,579.

Pat concludes by saying that "We all need to work together or we will be forced to make some very difficult decisions in the near future. We need to act now!" He suggested that:

  • We increase advertising to promote the manufactured housing lifestyle.
  • Park owners should establish a "no rent till sold" policy for dealer in-park models.
  • Park owners should buy the old inventory at a discount and carry paper as necessary.
  • Park owners should consider allowing sub-renting in parks to help current homeowners.
  • Park owners could turn their parks into a condo conversion.
  • Park owners should adjust space rents to market value.

Don Grummer - J&H Asset Property Management, said that park owners are beginning to realize the consequences of the declines in manufacturers and dealers. He indicated that these declines are creating a lack of new homes, little or no upgrading in parks, increased vacancies and decline in resident quality. He felt that dealers and park owners should jointly consider concessions and steps to increase home sales. Don suggested that:        

  • Park owners establish a "no rent till sold" policy for dealer in-park models.
  • Park owners offer rent reduction to new home buyers.
  • Park owners should assist dealers with new home and lot maintenance.
  • Park owners could offer referrals to residents who offer sales leads.
  • Park owners could offer incentives to residents who upgrade old homes.
  • Dealers and park owners should create cooperative advertising programs.
  • The industry needs to provide wholesale and retail lending.

Don stated that there are fewer retail lenders, and they are requiring tighter lending standards due to unconscionable rent increases. This is contributing to borrower foreclosures on homes with little value, compounded by the lender's obligation to pay space rent on repos with no effort on the part of the park owner to assist in maintaining the site or in the sales effort. Don suggested that dealers prequalify park owners to determine if they are willing to offer long term leases with reasonable rent increases, to determine the park owner's philosophy on rent increases and community upgrades and to see if they offer lenders a "no rent till sold" policy on repos while the sales effort is in progress.        

Sam Silverman, President of Maple Ridge Homes - Dealer - 30 years of experience. Sam demonstrated how rising space rents in parks and the devastation in the conventional housing market are shrinking manufactured home sales. He showed the graph "Monthly Payment Choices Available to Consumers" and then presented two scenarios showing comparisons from 2006-2010 for resale and new manufactured homes, conventional homes and condos and apartments. The first scenario (using an assumption of $1,000 per month space rent) showed the monthly payment for a new manufactured home in 2010 actually being about $300 greater than that of a conventional home or condo. However, the payment for a resale manufactured home still holds the lead for best value around $1,400.    

The second scenario kept all the assumptions of the first but was recalculated using a space rent of $1,300 per month. In this case the monthly payment of a new manufactured home rose above the conventional home by nearly $600 and the payment for a resale manufactured home rose above the payment for a conventional home by about $100. Sam talked briefly about lender-owned homes and the price point at which park owners might purchase the home versis the owner pulling it out. Sam noted one high point for the dealers when referring to the current low point in Year-to-Year Housing Starts: He believes that low housing starts now will eventually create higher price demand as the market turns.        

Mike Hayes - General Manager of Fleetwood Homes, gave an overview of the situation with manufacturers. Production is down 85% (estimated at 1,600 for 2009) from 10,924 in 2005. Two of the three largest manufacturers (Fleetwood and Champion Industries) filed for bankruptcy in 2009. Raw materials suppliers in California and Arizona are closing their businesses or discontinuing manufactured home products, placing additional costs on manufacturers. The industry has lost a large number of skilled workers. Fleetwood CA production employment is off 84% from 2005-2009 (550 in 2005 vs. 88 in 2009). Of the ten plants in California, two have closed and the rest are operating at 20% capacity. In 2010 there will only be enough demand to sustain three of the remaining plants. As manufacturers leave, freight costs rise at $2000-$6000 per home. The bad news for park owners is that prices are going up in an economy where prices should be going down.

In closing, Deann Pancheri call for the formation of an industry-wide council with representatives from the five elements to formulate a set of creative guidelines upon which all elements can agree and act upon to lead the industry toward profitability.

Deann then introduced Jerry Bennett - President of the California Multiple Listing ("CML") (http://www.calmultiple.com), who announced the creation of the "CML Consortium" a separate entity created by the CML to spearhead the communication and sharing of ideas between the five industry elements. Jerry said solutions to the problems faced by our industry will not come from a single trade organization or advocacy bodies. They must come from a synergistic consortium. Jerry said that one of the most important steps you can take now is to get involved by joining the CML Consortium - it's free! Information about the CML Consortium can be found on the CML Blog at http://www.calmultiple.com/blog/ or at http://www.linkedin.com/e/vgh/2700785/ or by logging on to linkedin and search for the group named "CML Consortium." Information about the CML can be found at http://calmultiple.com.    

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