It appears that 2005 is shaping up to be a year of modest increases and renewed optimism in the manufactured housing industry nationally.  On a local and regional basis business is best described as fickle.  Small gains or losses from last year and continued struggles in certain markets make it difficult, while other markets are brisk.  The Seattle area North to the Canadian border seems to be pretty good, but most of Eastern Washington is slow.  In Oregon, Portland is an incredible site-built and condo market but manufactured homes have been left in the dust.  Head South and it gets better and better the further South you go.  The Medford retailers hate to admit it but business is pretty darned good.  Central Oregon is modest; Eastern Oregon appears to be OK.  As a region, here are the latest numbers:
 
Shipments (new manufactured homes shipped into the state, presumably for sale or already sold) in March and Year-to-Date 2005 are:
 
IDAHO
March 2005, 75 Homes shipped - March 2004, 48 Homes shipped, + 56.3% / YTD 2005, 199 Homes shipped, 2004 129 Homes shipped, +54.3%.
 
OREGON
March 2005, 204 Homes shipped – March 2004, 233 Homes shipped, -12.4% / YTD 2005, 579 Homes shipped, 2004 593 Homes shipped, -2.4%
 
WASHINGTON
March 2005, 247 Homes shipped – March 2004, 258 Homes shipped, -4.3% / YTD 2005, 643 Homes shipped, 2004 600 Homes shipped, +7.8%

NATIONALLY shipments are up nearly 15%, with Nevada, California, Utah, Arizona, New Mexico and Montana showing steady double-digit improvement over 2004.
 
We won’t bother with the production numbers.  Washington has less than three active production plants so their numbers aren’t easily published, and the Oregon and Idaho plants say the California and Nevada business is keeping them busy.  But I can tell you that production numbers are up, double digits.  California is the main reason, but I’m not that concerned with California (they’ve never been that concerned about us!!) so let’s talk more about the Pacific Northwest.  But first…

Congratulations to PALM HARBOR HOMES for returning to profitability in the latest quarter, according to a news release on May 17, 2005.  Palm Harbor made a $2 Million profit in the quarter and is enjoying a year-to-date sales increase of $32 Million over 2004.  CHAMPION Homebuilders continues to enjoy profitability and is being helped by a healthy contract from the US Government to build modular military housing.  We’re told that FLEETWOOD also is building some military housing, as the Defense Department has recognized the need to improve housing conditions in order to attract more recruits into the military.  Speaking of FLEETWOOD, we’re waiting to hear who the buyer is for Fleetwood Retail Corp. and HomeOne Credit Corporation.  Fleetwood announced on April 5, 2005 that the two subsidiaries will be spun-off and several sources say a buyer has stepped forward.  I know someone in my circle of friends knows who the buyer is, but their lips are sealed.  Come on guys, who am I going to tell?  Maybe a few hundred people, that’s all.

LAND LEASE COMMUNITIES
It was my privilege and pleasure to participate in MH community Guru George Allen’s Focus Group May 5th & 6th.  Community operators and owners from Indiana, Oregon, Mississippi, California, Florida and Arizona came to the gorgeous SongBrook community in Eugene, Oregon to network, brainstorm, share ideas and experiences and participate in a lively debate about the current state of manufactured home communities.  The most interesting thing to me is that regardless where you’re from you share most of the same challenges and have most of the same opportunities.  From expense control to clever security measures (SongBrook told their homeowners if they suspect someone has entered their home “uninvited”, keep your car keys on your night stand and press the panic button on the remote-entry device….the car horn will sound and scare the intruder away.  Isn’t that a great idea?  And it’s free!)
 
FINANCING was the focus of one discussion amongst the group, talking about the lack of reasonable Chattel financing and when, if ever we would see competitive financing offered to those credit-worthy “C+ & B-“ homebuyers.  You don’t need to be J. Paul Getty to know you can make a profit at buying 700+ score finance contracts at high rates and short terms.  Anybody can make money at that.  The real need is for financing that actually matches the profile of many of our buyers.  Working class, blue collar, good nuts-and-bolts American’s that haven’t had everything go perfect in their lives but will work hard to buy and pay for an affordable, energy efficient manufactured home.  The most active Chattel lenders we know are community owners.  One in particular has over $1 Million in Chattel paper in his own community and he said it’s been a great investment for him.  The loans are performing well, and these are people who were turned down by traditional Chattel lenders in the last 24 months.
 
COMMUNITY CLOSURES.  It is starting to happen all over the country, and later this summer there will be a number of manufactured home communities closing in Oregon, purchased by home builders who intend to redevelop the land for site-built housing.  We know this for a fact because a few of these communities are currently managed by Commonwealth Real Estate Services and we’ve been notified by our client (the community owner) that they would like to retain us to assist in the relocation of these homeowners.  As I’ve written before, this is a phenomenon that we did not predict….production site-builders willing to pay FAR MORE for a manufactured home community just to get the land, than a community operator would be willing to pay for the operating entity.  This reversal of value has taken place just in the last 12-18 months and is not limited to properties within the Urban Growth Boundary of the Greater Portland area.  Three communities are closing in Bend, Oregon and we are hearing about communities closing in Seattle, Spokane, Boise, Salem and other cities. 
 
You cannot blame an investor for selling to the highest bidder.  That is capitalism at work…business is business.  The problem is, how to we lure new Chattel lenders to our industry with a straight face knowing that they will make a $40,000-$80,000 (or more) loan on a home that could be evicted a year from now, in all likelihood lowering the value of that home as a “mover” to $15,000-$20,000.  If you’re like me you’re saying “but that would never happen in a nice, new, nearly full community”.  Well, yes it is.  All over the place.  It’s not necessarily the distressed communities that are threatening to close.  As a matter of fact, it’s the opposite in some cases.  Good communities in great locations are very attractive to builders.  If a land-lease community is worth $50,000 a space now, but worth $90,000 a space or more to a home builder, who would you sell to??  Especially when every time a repossession comes up in your community the lender holds a gun to your head and forces you to “buy it or we’ll pull it”.  That discussion is become real old.
 
Add to this the results of MHI’s $250,000 NOP World-Roper study, 107 pages of research that tells us what we already knew….consumers love our product but hate the way we sell it, deliver it, service it, and resolve problems.  It’s no wonder Washington Mutual, IndyMac, Green Point, Seafirst, Bank of America, Associates, Chase, GMAC and many more said Buh-Bye.
 
Gub Mix, Marty Lavin, George Allen and a host of other people smarter than me have been hammering on this for years, and they write about it much more eloquently than I do.  The key to our future is not modular---it’s a great product, and we need it, but we don’t need to abandon HUD code homes in the process.  The key to our future is to change the way we do business.
 
THE SOLUTION
It’s simple.  Do the right thing.  Treat people the way they deserve to be treated.  Under promise and over deliver.  Earn their trust and follow through.  Don’t let the bottom line distract you….if you do it right profits will flow in.  People like manufactured homes.  It is not our homes that disappoint them, its tour people that disappoint them.  Experts around the world, including home furnishings giant IKEA say factory-built housing is the future.  Let’s start acting like it.
 

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