On 9.2.2022 an Investor’s Business Daily (IBD) report by Michael Molinski also picked up by Yahoo Finance provided a mixed assessment of the manufactured housing industry based in part on data about publicly traded firm that are members of the Manufactured Housing Institute (MHI). Some of the statements by IBD are factually fine. Others are odd, questionable, or errant. And one of the sources that Molinski cited from outside of manufactured housing about the industry is in the view of some a bogus or sloppy ‘research’ firm that may have sucked IBD’s writer in. An analysis will follow the text of their report, which is provided under fair use guidelines for fact check and other purposes.
Highlighting in what follows is provided by MHProNews as a way of drawing specific attention those areas of their report.
Do Manufactured Homes Stand To Benefit As The Housing Market Weathers A Recession?
by Michael Molinski
The housing industry has officially entered a recession. To be clear, the single-family, site-built housing market has entered a recession. Niches of the industry, such as multifamily homes, appear to be in a very different situation. The same may be true for a low-end segment of the market known as modular or manufactured homes.
The stocks of manufactured homebuilders rallied from mid-June to mid-August, along with other industries banking on a short rate tightening cycle from the Federal Reserve. Charts for stocks including Cavco Industries (CVCO), Skyline Champion (SKY) and LCI Industries (LCII) shaped valid bases.
Then, hawkish signals from the Fed sent anything investors considered a rate-sensitive industry into retreat. Caught up in that selling, Cavco, Skyline, LCI and others saw their chart patterns collapse below key levels of technical support.
Those charts reflected a number of industry data points. Builders confidence swooned in August. Sales of both new and existing homes dropped in July vs. June and year-ago levels. Single family housing starts dropped 10% in August, vs. July.
Multifamily Demand Steady
Multifamily homes, meanwhile, were a different story. The number of buildings with five or more units under construction is up almost 25% over year-ago levels, according to the National Association of Home Builders. Shipments of new manufactured homes during the second quarter swung more than 37% above the year-ago period, with 11,400 units delivered.
In July, Pew Research reported a nationwide shortage of 3.8 million housing units. Much of that need is among low income or poverty-level consumers. But existing housing stock is increasingly under pressure from real estate investors, which accounted for 24% of all the single family homes purchased in 2021. That leaves supply tight and pickings pricey for fixed-income retirees looking to downsize and cut costs, or first-time homebuyers struggling to save up a down payment.
As rising interest rates place increased pressure on those already stressed home shoppers, analysts and investors are watching to see whether much-lower-priced manufactured homes garner more attention.
Economic Trends That Make Manufactured Home Stocks Shine
The industry got its start building mobile homes, the kind with wheels that packed into trailer park communities — most of them low income settings — across the U.S.
But trailer parks have come a long way since Sammy Kershaw hit the top 10 of the Billboard charts with his 1993 country hit “Queen of My Double Wide Trailer.” And maybe even since Toby Keith’s “Trailerhood” hit in 2010. Trailer parks are no longer seen as lower-income havens. Sure, some trailer parks still are, but increasingly there has been a shift to more upscale park model modular homes.
The difference between manufactured homes and modular homes is slight. The main difference is that manufactured homes are built to the national HUD code, while modular homes are built to applicable state and local building codes. But they essentially look the same. although modular homes can be more easily transportable.
Allied Market Research estimates the size of the manufactured homes industry will grow from $31 billion today to $39 billion by 2027, at an annual rate of 6.5%. Some 22 million people in the United States live in manufactured or modular homes.
Buffett’s Heavyweight: Clayton Homes
A big piece of that market is the turf of Clayton Homes, a division of Warren Buffett’s Berkshire Hathaway (BRKA) and America’s largest manufactured homebuilder. Clayton has reportedly done well as demand for manufactured homes escalates.
But a number of economic trends suggest makers of manufactured homes are broadly poised to benefit. Those trends include:
- The ongoing downsizing trend as baby boomers enter retirement age and look to cut costs.
- Rebranding the names from “trailer parks” and “mobile homes” to park sites that allow “modular homes.”
- People, both young and old, who have been forced out of the housing market by sky-high property values.
- Millennials who see manufactured and modular homes as the next wave of the housing market, where you can take your home with you.
Growth In Revenue Expected to Climb
“Revenue for the manufactured home wholesaling industry is expected to be sustained over the five years to 2027 in light of expected increases in construction activity,” a recent IBIS report stated. “However, projected increases in interest rates, as the economy recovers from the Covid-19 (coronavirus) pandemic, may limit industry growth. Continued downstream demand from construction will likely underpin revenue for the wholesaling of industry products. Despite the cost of raw materials rising.”
Mobile-manufactured homes and recreational vehicles are combined into a single industry group. The group currently ranks No. 134 out of 197 industry groups that IBD tracks.
RVs experienced a record-setting sales rush as pandemic shutdowns launched the van life and glamping crazes in 2020. Thor Industries (THO) and Winnebago (WGO) both shot up in 2020. Then the RV industry underwent a downturn, due to supply chain issues and to a lack of demand once the pandemic subsided.
The manufactured homes group has been more consistent, tracking the housing market’s longer-term cycles.
Skyline Champion Builds On Earnings
“Our growth and improved profitability levels continue to be driven by the demand for our homes and our team’s ability to increase production levels,” said Skyline CEO Mark Yost in announcing quarterly earnings on Aug. 2. “The ongoing efforts to deliver better homes faster through streamlining product offerings and investments in capacity and people are paying off as we sequentially reduced our backlog and improved delivery times to our customers.”
Skyline Champion offers a wide variety of homes, with prices averaging around $65,000.
Skyline logged six quarters of triple-digit earnings growth through the June quarter. Revenue growth during that period averaged 54%. Skyline earned $2.03 per share on sales of $726 million in the June quarter, easily beating Wall Street estimates on both earnings and revenue.
RBC, Barclays and Craig-Hallum all raised their price targets on the stock and held their ratings at outperform, overweight and buy, respectively, following the earnings report. The target average was 74 — about 35% above where shares traded on Thursday.
Analysts see a 104% EPS gain in the company’s fiscal second quarter, ended in September, according to FactSet. The revenue growth target is 32%. Beyond that, earnings forecasts are flat to lower. Projections for revenue are for declines starting in the fourth quarter. But company management remains optimistic.
“We expect awareness of our housing solutions to continue to increase given the tighter economic environment and challenges within the traditional site-built home market,” Yost said.
Cavco Tries To Build Base
Phoenix-based Cavco sells manufactured and modular homes, park model RVs and even cabins and commercial structures. Three-bedroom homes range roughly from $30,000 to $150,000.
After a brief spike on Aug. 5, the day it easily beat quarterly earnings and sales estimates, Cavco’s stock chart quickly unraveled.
Cavco has booked triple-digit earnings gains in five of the past six quarters. Revenue growth has accelerated for seven quarters, rising 78% in its fiscal first quarter, ended in June.
FactSet analysts expect Cavco to report earnings of $5.88 a share, up 44.8%, in the September quarter, on a 54% sales gain, to $555 million. Further out, quarterly earnings and revenue growth projections jerk up and down — but annual gains continue.
LCII Leverages Strength In Manufactured Homes And RVs
LCI Industries splits its sales between two industries: manufactured homes and RVs. The Elkhart, Ind.-based outfit makes components, furniture, trailer hitches and other items for the RV, boating, manufactured and modular homes industries. LCI’s brands include Taylor Made boat parts and Thomas Payne furniture.
As RV sales and prices shot up in 2020, LCI shifted its focus onto RVs. In the latest quarter, supplies for trailers and fifth-wheel RV sales shot up 49% over the previous year. For 2021, Thor Industries represented 23% of total LCI sales. Berkshire Hathaway’s Forest River and Clayton Homes accounted for a total 20% of sales.
While acknowledging the downturn of demand from RV makers recently, CEO Jason Lippert says he’s confident the company will increase its market share both within the RV industry and in the manufactured homes industry.
“The widespread availability of peer-to-peer rentals, along with increasing costs of airfare and hotel lodging, have made camping, boating, and RVing attractive options for vacationing,” Lippert said. “We believe our diverse portfolio has positioned us for long-term growth as we capture tailwinds related to the ongoing popularity of the outdoor lifestyle.”
LCI earnings sputtered in last year’s third quarter. The numbers quickly picked back up, while sales growth continued at a healthy clip.
FactSet analysts project another Q3 blip this year, due to the lack of demand from RV makers and seasonal trends. They expect earnings of $2.55 a share vs. $6.06 for Q2, but still up from $2.50 a share in the year-ago quarter. The only recent analyst action on the stock was a downgrade, to neutral, by DA Davidson in early August.
Manufactured Home Stocks Are Not The Only Way To Invest
In addition to the builders and suppliers of manufactured/modular homes, investors can also buy real estate investment trusts (REITs). These REITs hold preplanned communities designed to house modular homes. They include Equity Lifestyle Properties (ELS), Sun Communities (SUI) and UMH Properties (UMH).
A quick look at MarketSmith charts tell us that none of these REITs is positioned to create a buying opportunity. And most REITs have followed the real estate market as it enters a recession. ##
Additional Information with More MHProNews Analysis, Critique, and Commentary in Brief
Molinski didn’t mention the source for his 24 percent of single family homes being purchased by private investor back capital. It may have been Pew Research which said on 7.22.2022 the following: “Investors bought 24% of all single-family houses sold nationwide last year, up from 15% to 16% annually going back to 2012…”
The Allied Market Research remark highlighted above should be reviewed in the light of feedback from industry professionals, found at this 2021 report linked below.
Pew’s claim, repeated by IBD’s author, that the nation is 3.8 million units short is contradicted by a range of sources that have said that the shortage of housing units is significantly larger.
In fairness to Molinski, how many million new housing units are needed is an area of housing data that is oddly under-questioned by mainstream media in general. To illustrate the problem/issue: the National Association of Realtors Chief Economist Lawrence Yun said a few years ago that the shortage was some 8.3 million housing units. The NAR itself said since then that builders have not kept up with demand. So, how is it possible that the gap has dropped from 8.3 million homes needed to only 3.8 million now? The obvious answer is – that no such closing of the gap occurred. The reasons are explained in the Rosen/NAR analysis linked below. Logically, either the old claims were wrong, or the new ones are errant, or some mixture of both. Some examples of quoted claims and reports by MHProNews that address aspects of that issue are shown and linked below.
IBD’s Molinski on Cavco Claims
Good luck trying to find a new 3 bedroom Cavco home starting at $30,000. Per his report: “Three-bedroom homes range roughly from $30,000 to $150,000.” Nor does he explain if he meant ‘retail’ or wholesale. Good luck either way.
For Cavco facts and figures and insights that he missed, see the two reports that are linked below.
Checking Molinski on Skyline-Champion Claims
Once more, when he cites a dollar figure, Molinski fails to say if he means wholesale or retail, but based on impression, it seems to mean retail pricing. That said, this statement: “Skyline Champion offers a wide variety of homes, with prices averaging around $65,000.” doesn’t seem plausible. Here is why per the U.S. Census Bureau’s most recent data on the national level.
|Average Sales Price of New Manufactured Homes
by Region and Size of Home
|By Month of Shipment|
Given that the national average for a single section manufactured home is $87,300 in March 2022 and the national average for both singles and multi-sections is $129,200, how does Molinski think that SKY can achieve an average retail price of about half of that figure? It is one more indication that the IBD report is at best a mixed bag of accurate, inaccurate, and troublingly lacking in an editor’s fact check.
REITs per IBD’s Molinski
Molinski wrote: “These REITs hold preplanned communities designed to house modular homes.” This is at best a misstatement, because manufactured homes and modular homes are not interchangeable terms, as his own remark quoted next reflects: “The difference between manufactured homes and modular homes is slight. The main difference is that manufactured homes are built to the national HUD code, while modular homes are built to applicable state and local building codes. But they essentially look the same. although modular homes can be more easily transportable.” That remark likely sent the Modular Home Building Association’s (MHBA) Executive Director Tom Hardiman into low orbit. But then several claims from this report are factually problematic, a polite way of saying, Molinski is wrong to have written it. See this partial critique for examples.
Then, there was this by Molinski: “A quick look at MarketSmith charts tell us that none of these REITs is positioned to create a buying opportunity. And most REITs have followed the real estate market as it enters a recession.”
Let’s be clear. MHProNews has been a critic of several MHI member firms and MHI state affiliate members for their “predatory” business practices. MHProNews has critiqued them for failing to push for the enforcement of good existing laws which would lead to more sites, and ergo more competition for themselves. In essence, the litany of legal and ethical concerns raised by Samuel “Sam” Strommen with Knudson Laws are on the main our concerns too in an editorial perspective, with a more few added in. They are making the reputation of manufactured home living poorer because they are making the lives of thousands of their own residents more precarious. Numbers of those residents were living in those properties before this or that REIT or consolidator swoped in.
That said, the case can be made that these firms are doing so for reasons that include the fact that it props up their stocks valuations. Monopolists, after all, routinely believe – or behave as if they believe – that their business practices are good for shareholders.
One can mock the investment value potential vs. actualization by REITs for a range of reasons – such as a reliance by so many community operators on rentals vs. a greater emphasis on new manufactured home sales. But Molinski’s rationale in published remarks on REITs are on the whole arguably poor at best, or nonsense at its worst. Given the current miasma of MHVille, it is fair to say that objectively the MH Community REITs are a safe, sound, and in some ways an attractive investment.
Score Card, Recommendations, and Summing Up
Molinski’s IBD report could be fisked more deeply. But that is sufficient to realize that much of what he said is simply inaccurate, incomplete or is otherwise problematic. One could separate the wheat from the chaff by pointing to this quoted remark: “We expect awareness of our housing solutions to continue to increase given the tighter economic environment and challenges within the traditional site-built home market,” Mark Yost (SKY) said.
Or this: “Shipments of new manufactured homes during the second quarter swung more than 37% above the year-ago period, with 11,400 units delivered.” Both are true enough and suggest an answer to the IBD headline question.
The impression from this review for a seasoned veteran of manufactured housing looking at IBD’s report, which was picked also up by Yahoo Finance (as noted), is as if Molinski pulled together a series of observations, at least some of which he may not have fully understood and/or fact checked. That may explain his problematic mix of terminology used, factual misstatements, and quoting a source that is questionable. The IBD/Yahoo Finance report is thus at best an inadequate and problematic analysis of the manufactured home industry’s potential. A better understand emerges from the report by the Urban Institute with an analysis shown below.
Entirely missing are citing sources such as the Urban Institute’s research into manufactured housing, or that of LendingTree, which if MHI were doing what it claims properly, could be fueling ever higher growth rates than those Molinski observed in his narrative and that graphic on manufactured home shipments.
To be generous, it is a C- level research report, for the reasons noted above. A tougher grader might have given a “D” or worse, given the air of credibility that attaches to IBD. Molinski’s LinkedIn profile includes this statement: “Senior Editor, Special Reports. Responsible for content strategy and creation, editing and writing IBD’s Special Reports, which average 20 per year…” If so, then the publication should swiftly move to repair the damage by making numerous corrections plus issuing an apology to their reader for the factual and terminological errors, oversights, missteps, etc. they published under his byline. That would be in keeping with the Society of Professional Journalists Code of Ethical Conduct, shown below. After this is published, it will be brought to their attention. Let’s collectively see what they do in the wake of that notice, shall we?
Molinski’s headline was: “Do Manufactured Homes Stand To Benefit As The Housing Market Weathers A Recession?” To a certain degree that question was implied by was not directly answered in his report. Let’s let Cavco’s President and CEO, William C. “Bill” Boor provide the reply in the quote that follows. If the industry’s good federal laws were being enforced, most certainly a robust growth would be occurring.
As a closing note that is on the picky side is this. The featured image used in Yahoo Finance’s version of the report only underscores the problematic nature of the rest of the report. Those are not images that accurately reflect how a manufactured home looks like in a factory as they are being built.
To learn more, see the linked reports above and below that might have provided by IBD in their “industry snapshot.” The new manufactured home data for July are expected this week. Happy Labor Day 2022. ###
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By L.A. “Tony” Kovach – for MHProNews.com.
Tony earned a journalism scholarship and earned numerous awards in history and in manufactured housing.
For example, he earned the prestigious Lottinville Award in history from the University of Oklahoma, where he studied history and business management. He’s a managing member and co-founder of LifeStyle Factory Homes, LLC, the parent company to MHProNews, and MHLivingNews.com.
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