Stocks that will Benefit from the Housing Bill: Manufactured Homes
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Date updated:08-08-2008

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.

symbol name last price % change open
  • +
  • CHB
    Champion Enterpri
  • $0.21
  • -4.55%
  • $0.225

two insiders purchased over 40,000 shares in July, close to the passage of the housing bill. This stock has been on a strong move up since. Also uber investor Jeffrey Gindall owns a nice stake in this company.

People owning CHB also tend to own: CAVCOPAFFXBSXBZHCKPCPWM

TheStreet.com Rating: D- What is this?

  • +
  • CVCO
    Cavco Industries
  • $31.19
  • 0.00%
  • $N/A

Diversified in MH industry in the Southwest US. A good way to get exposure to MH.

People owning CVCO also tend to own: BOOMBRNCDWEGLTEPEXESEAEXPO

TheStreet.com Rating: C- What is this?

  • +
  • FLE
    N/a
  • $0.17
  • 0.00
  • $0.17

A controversial contrarian play due to their RV segment. The stock has been crushed and near its lows. A review of SEC filings shows, however, that over 130,000 shares have purchased by insiders since July. (You wonder if they also read the housing bill.) Because Fleetwood also sells RVs it was doubly hurt by the subprime lending in the mid 2000s and the relatively exorbinant gas prices. However,from a risk reward profile, Fleetwood may be a triple with the housing bill and gas prices moving down. Demographics really play in this company's favor and I like that insider buying was spread across many executives.

People owning FLE also tend to own: MCKTWIFITBNZTSNDAPBYSPNC

TheStreet.com Rating: No Rating What is this?

  • +
  • SKY
    Skyline Cp
  • $17.44
  • 0.00%
  • $N/A

MH manufacturer, also offers an almost 3% dividend yield.

People owning SKY also tend to own: ADMAEEAMGNBLUDBWCATCOP

TheStreet.com Rating: D+ What is this?

  • +
  • PHHM
    Palm Harbor Homes
  • $2.23
  • 0.00%
  • $N/A

Company has good brand name, but seems to have some problems with management.

People owning PHHM also tend to own: FORDPETSCHBCVCODWFLENOBH

TheStreet.com Rating: D- What is this?

  • +
  • DW
    Drew Industries I
  • $20.93
  • 0.00%
  • $N/A

This company is a major supplier to both manufactured home companies as well as RVs. It , manufactures and markets various components for recreational vehicles (RVs) and manufactured homes in the United States. As the MH industry sells more, DW is extremely well positioned to benefit and should be a leading indicator if my thesis on MH stocks is correct.

People owning DW also tend to own: DNAELXGLWINLVLTECPGFDC

TheStreet.com Rating: D+ What is this?

  • +
  • NOBH
    Nobility Homes
  • $10.30
  • 0.00%
  • $N/A

Very thinly traded microcap stock. Company well positioned for Florida to turnaround based on future population growth. Illiquid stock makes it only appropriate for speculative money.

People owning NOBH also tend to own: CCHBDDFCXFDXGMHE

TheStreet.com Rating: D+ What is this?

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