What a wonderful way to start a Wednesday! I couldn't have been more surprised when drinking my morning coffee and checking the manufactured housing sector's ticker symbols on Quicken.com last Wednesday, April 2, when I read that Warren Buffett's Berkshire Hathaway, Inc. had announced their $1.7 Billion cash offer ($12.50 per share) to purchase Clayton Homes, Inc. (ticker symbol CMH). My phone rang off the hook most of the morning from industry friends around the nation, happily spreading the good news. Clayton has long been regarded as the most successful and prestigious vertically integrated manufactured housing company in the nation, remaining highly profitable in an industry where downsizing, closures and bankruptcies are becoming more common every day. Clayton builds, sells, finances and insures manufactured homes through a vast network of company owned manufacturing facilities, retail outlets and the two Clayton-controlled finance arms, Vanderbilt Mortgage and 21st Century Mortgage.

Warren Buffett himself was quoted as saying "By retaining discipline, Clayton Homes is the lone tower of strength in an industry battered in recent years by the consequences of lax financing practices." Barbara Allen, an analyst for Arnhold & S. Bleichroeder Inc., says the deal is a "fabulous deal for Buffett....it's not a good deal for current Clayton shareholders". She is a shareholder of Clayton and estimates the fair value of the company at $22.00-$26.00 per share. Champion Enterprises CEO Walt Young describes Clayton as "a class act" in the industry, adding "it was shocking....there were no rumors at all. I welcome Berkshire to the industry". I'm told the Clayton family gave Mr. Buffett a secret identity when calling company headquarters.....Mr. Sunshine. It certainly seems an appropriate name for a person who now adds Clayton Homes to his investment in Oakwood Homes just a few months ago.

This has to be great news for our industry, as this may be the kind of endorsement we have needed in order to lure a major finance company or two back into manufactured housing. You can't get much bigger that Warren Buffett, and his investment in Clayton and Oakwood, coupled with his run at acquiring Conseco Finance, should ease investors worries and show Wall Street's financial analysts that the manufactured housing industry is a viable industry with a bright future. John H. Diffendal, a manufactured housing analyst with BB&T Capital Markets in Nashville, Tennessee called the purchase of Clayton Homes "an endorsement of the long-term viability of the industry".

In other news, while manufactured home sales are still fairly flat in the Pacific Northwest, most people agree that they are seeing an increase in consumer inquiries and feel that a slow recovery is underway. Homes being sold in land-lease or rental space communities continue to plug along at a slow but steady pace and new homes sold on land with the use of conventional mortgage type financing are steady, but not brisk by any means. We at Commonwealth continue to promote our communities to consumers and manufactured housing retailers but find it important to re-educate the masses on the lifestyle and affordability of community-style living. There is an ever changing workforce in our industry and many people out there selling homes have little or no industry experience, which makes it more important that ever that we all get out there and do our part to spread the word and have a little "history lesson" with them.

One sector related to manufactured housing is experiencing significant growth. The modular home business, which some people feel will be an ever increasing part of the overall "factory built" home industry nationally is growing steadily. Modular builders report a increase in market share and production backlogs, largely because of their pricing advantage when compared to site built homes while accessing the same conforming interest rate mortgage products. Particularly in areas where site built housing is very expensive, and zoning for manufactured homes is very restrictive, modular homes are a viable and affordable housing option. Modular home builders in the Pacific Northwest include Guerdon Enterprises in Boise, Idaho, and Blazer Industries in Aumsville, Oregon. I haven't seen a Blazer home, but Guerdon has developed a stunning array of products that are virtually undistinguishable from modern site-built homes.

The glut of repossessions doesn't seem to be shrinking much, and lenders continue to liquidate inventories at fire-sale prices. While it's critically important to our resurgence that this repossession hangover be absorbed by the marketplace, it is certainly painful going through the process. Asking homeowners in our communities to "hang-in-there and your equity will re-emerge" is getting to be a tougher sale to make everyday. I am very conflicted by the pricing of these homes. If you're a buyer, you can't hardly go wrong, and it's an area of frustration for me that some people don't know a great deal when they see one. On the other hand, if you're a seller and you owe $50,000 on a home that the bank is selling a duplicate for next door for $20,000, it's a bitter pill to swallow.

This run of repossessions must come to an end, and it's up to everyone in this industry to play a part in the process. I applaud those manufactured home community owners, retailers and finance companies that are playing an active role in the sales and financing of these homes. These homes are keeping us from experiencing a nationwide recovery, so if you're a retailer or a community owner, please don't spend your time and energy fighting these lenders and holding a gun to their heads. You need to protect your rights of course, but help them liquidate this inventory and we will all begin to enjoy renewed prosperity and experience the growth and expansion of the manufactured housing industry here in the Pacific Northwest.

Greg Harmon - President
Commonwealth Real Estate Services
E-mail: greg@cwres.com
Telephone 503.244.2300 Ext. 101