Larry Keener, President of Palm Harbor Homes, made the following comments during the investor’s call for the third quarter of 2007 on January 22, 2008. PHHM’s third quarter concluded Dec. 31st, 2007.

48 percent of the year over year decline in manufactured housing shipments can be traced to three states: California, Florida, and Arizona. Those are three of the top for biggest states for HUD-code shipments. The other leading state is Texas. Oddly enough, in Texas, shipments actually increased.

The loans within their servicing portfolio (at Countryplace Mortgage), which includes chattel loans, are actually pretty strong. The terms are decent — no pay option, only fully documented loans, and no adjustable rates. Average credit score is 713. Average downpayment is 16 percent. Remaining average outstanding loan balance is $68,000.

Sales declines are led by a 70 percent year over year drop in shipments to “lifestyle communities.” These are communities for affluent, over 50 adults.

39 delinquent (plus 60 days) accounts out of 3,934 loans.

What does this tell us? I suppose that there are two stories — revenue and credit quality.

On the revenue side, it shows that Palm Harbor is having trouble generating sales in geographies that have been the most reliable portions of the manufactured housing market.

On the credit side, it appears that they have done their best to work with quality borrowers. That could be PHHM’s business model. Someone out there, please tell me if that is the case. The loans are doing fairly well. That rate of default is well below what some other mortgage companies are seeing. In fact, its almost four times below some of the rates at the money center banks.

You may have heard that Federal Reserve lowered interest rates again today. Today’s 50 basis point drop is the second rate decrease in just two weeks. Both were more than just a quarter percentage point, two. This is a substantial change in the lending environment.

For most borrowers, that is going to mean that the mortgages that they apply for in the next few months will cost less. 125 basis points represents tens of thousands of dollars over the lifetime of a 30 year mortgage. On a $100,000 home, such a drop represents $104 off the first month’s payment.

That same benefit probably won’t be going to people who want to buy mobile homes. That is because of some behind the scenes policy changes going on at Freddie Mac. Freddie Mac buys mortgages, including some mobile home mortgages. They tend to focus on the safest manufactured housing loans — those made on homes designated as real property. They are not the only buyer out there, but they are large enough to have a big impact upon the market.

Freddie plans to add a “delivery fee” \of 50 basis points on March 1st, 2008. That means that they will charge one half of one percent of the loan amount to lenders that want to sell their mortgages to Freddie. Because Freddie already charges 50 basis points for manufactured housing, it will mean a 1 percent penalty on manufactured housing mortgages.

Even worse, Freddie plans to institute a 75 basis point penalty for all mortgages with credit ratings below A-. That is going to include most manufactured housing mortgages. Not all of them, but most!

The Alabama Manufactured Housing Association is mighty upset about this.

A few days ago I spent some time pouring over the Residential Finance Survey. Its a great document. I am going to return to it today.

Some things that strike me as interesting, within the pages of this report:

• More mobile homes are sold used, in every region in the country, than are sold as “new.” This explains the relatively low mean and median sales prices contained elsewhere within the RFS. It also refutes the argument that these properties cease to have value after they leave the lot. Yes, they may decline in value some, but people still are willing to pay for the chance to live in them. A used mobile home is still a home.
• Homes in the South are the ones most likely to undergo capital improvements. This discrepancy between the South and other regions is so high that it makes me want to question how the numbers were calculated.  It just cannot be this distinct.  There must be some explanation.
• The rate of capital improvements in the South may be interrelated to the high rate of resale activity in the South. More homes are sold in the South than in any other region. It might also be that homes in the South skew to the lower end of the value (more…)

The Census Department has numbers for shipments and placements of manufactured homes in the United States in 2006.  There are preliminary data for the first 11 months of 2007.  The numbers show that the crisis within the industry has not lifted.

In all, 117,300 homes were shipped in 2006. This was a drop off from 2005, when the industry moved 146,800 homes. It was not as much as in 2004, either, when 130,700 homes were shipped.

For 2007, 89,900 units were shipped in the first 11 months of the year.  December is not traditionally a barn burner of a year.  This means that there is a distinct possibility that fewer than 100,000 units will be shipped in 2007.  That would be the lowest number since shipments were first tracked back beginning in 1959.

The numbers include seasonal expectations. The suggestion is that summer and early fall should be a time of peak sale. That was part of the problem. While shipments were fairly high for low-volume periods in the winter months of early 2006, shipments fell far below expectations in the latter months of the fall. In particular, October appears to have been a bad month.

Some time has passed. I wonder how changes in the macro environment of our economy will influence these numbers. At the time, hybrid mortgages were making it possible for a lot of people to get convenient low-cost financing on single-family site built homes. Those (more…)

Today I want to write about the median sale price of mobile homes, about the number of distress sales, and about the number of homes that are still sold that were built prior to the onset of the HUD code.

To do that, I am going to rely upon some Census data.  The Census Bureau’s Residential Finance Survey is a great find.

Some time ago, there was a debate about the average cost of a manufactured home.  I thought it was about $40,000.  Then again, I realize that such a price is really misleading, because homes are sold as both singlewides and doublewides.  The average price for doublewides is a distinct question that should not be influenced by the sale of a singlewide.

Now I can see from the RFS that the sale price is actually much different.  In the five years from 1997 to 2001, there were 1.2 million mobile homes sold.  That includes both  new and used homes, and homes that are paid for in cash as well as ones that are financed.  The average price was $24,960.  But that number is obscured by the doublewide problem, too.  The suggestion of such a bias can be seen in the median price — $15,692.  It is a lot lower.

The other thing that is interesting to me is the age of properties.  Sometimes people say that mobile homes are temporary housing.  (Actually, the same thing has been said about a lot of stick built homes in Chicago, but that owes to some peculiarites of the construction business in that area.)  Almost two-thirds (877,000) of the homes sold were built prior to 1979.  For the most part, those are pre-HUD Code homes.  The fact that they are being sold and not abandoned testifies to their continued utility as dwellings.

Sadly, there are also some sad things to see in the data.  The RFC cross tabulates the sale price as a percentage of the estimated value of the home.  I do not know how they generated “value,” because an appraisal process would have been far too costly, I am sure.  It may have been self-reported by the survey respondent.  What the numbers suggest is that a high percentage of homes are sold at distress prices.  Among homes made after 1997, 23,000 (5.8 percent) were sold at less than 60 percent of their value.  Among homes built prior to 1980, 49,000 (12.2 percent) were sold at less than 60 percent of their value.