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Manufactured Home Stocks Poised to Benefit from the New Housing Bill

In reviewing the new Housing Bill of 2008, it appears that one of the more noteworthy sections for investors is subtitled “Manufactured Home Loan Modernization Act.” This act spells out the Government’s goals in supporting and promoting ownership of manufactured homes in America. Government wants to increase the availability of financing for manufactured homes and to make the secondary market for MH loans more liquid. In addition, the Housing bill raises the loan limits for Manufactured Homes and lots by an impressive 43%! This is the first increase since 1992 and the loans will be adjusted on a COLA basis moving forward. Clearly Congress views manufactured homes as part of the solution to the housing crisis and makes the resurgences of this market a strong priority.

Manufacturers of these homes should strongly benefit because the price ceiling of insured loans has been raised in a major way. Specifically, under the bill, loan limits that the FHA can buy have been increased as follows:

1) manufactured home only - from $48,600 to $69,678
2) manufactured home lot - from $16,200 to $23,226
3) manufactured home & lot - from $64,800 to $92,904.

It can be inferred the raising of pricing thresholds should allow MH manufacturers to increase prices on sales that have been constrained due to the previously lower limits.

In addition to the housing bill, MH makers also stand to benefit from the slowdown and contraction in real estate. During the height of the subprime boom, many of the logical customers for MH homes traded up into Single Family Residences due to lax lending standards, easy credit and the belief that SFR value would only go up. This hurt MH sales which typically are purchased solely for utilitarian value, not for investment purposes.

Now, however, with real estate in a bear market, this dynamic has been reversed. The logical buyers of MH will now likely purchase them instead of jumping into SFR. In addition, some first rung home buyers may be knocked down to the MH level due to the tighter standards in lending. In all, the slowdown in residential single family home lending and buying will lead to more sales of MH.

In addition, most MH homes are sold to people over 50, a growing demographic. During the mid 2000s, many in this age range who wanted to live in two places during the year were able to acquire a second home due and build wealth in the process due to soaring real estate prices. As their home, for example in Pennsylvania, increased by 75 K they were able to buy a home in Florida which went up 100K after purchase. It was a virtuous cycle on the way up. Now however, the dynamic has been reversed and they may be underwater on their Florida home and feeling the monthly pain of a big mortgage payment for a home only used twice per year.
These folks still want the warmer climes in the winter, however, they may no longer be able to realistically affored two separate homes. Manufactured homes are great solution for them. They are extremely affordable and less maintenanced.

Thus, I predict many of the Seniors that had moved away from MH to become second home investors will decide an upscale MH park in Florida or Arizona is the best option for them.

Another tailwind for the MH industry is that the Housing bill has a $7,000 credit for first time Buyers which should help sales of manufactured homes.

In sum, as the traditional housing economy suffers headwinds of a slower economy, toughened underwriting, and decreasing values, the Manufactured Housing industry will benefit from the tailwinds of the housing bill and end of the real estate boom. This is a long term secular play and I view this as a three to five year opportunity. Investors buying now are still early and the growth in value will be likely slow but also very steady. The stars appear to have aligned for the MH industry. Below is a diversified basket of stocks focused on the MH industry.

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