Why the Pre-Fab Home Industry Is Ailing
The downsizing that has forced it to scale back its technology investing isn't unique to Cavalier Homes. The downsizing has affected the larger companies in the manufactured home-building business as wellcompanies like Clayton Homes, Palm Harbor Homes and the industry leader, Champion Enterprises.
Indeed, while the overall real-estate market has been a source of strength in the current economic downturn, makers of manufactured homes have struggledlargely because the consumers they serve have been hit hard in the last two years.
Manufactured homes are typically bought by older people on fixed or falling incomes, and younger people just starting outhigher risk borrowers even in the best of economic times. Interest rates on manufactured homes are typically four to six percentage points higher than rates on traditional single-family homes.
But when the economy was surging, the loans were being made with what, in hindsight, looks like abandon.
"Things got out of control," admits Cavalier Chief Information Officer Jay Wilson. "And we were just as guilty of looking the other way as everyone else. For about a year and half, there were a ton of no-condition loans that were being approved."
As more buyers of manufactured homes have defaulted on their loans, the banks that make such loans have been forced to become much more selective. The extent of the trouble can be seen in Conseco, the nation's largest manufactured home lender, which has seen its credit-rating status slide to junk. Conseco has even resorted to letting distressed mobile-home owners skip monthly loan payments without having their homes repossessed. That's mainly because Conseco's inventory of repossessed mobile homes shot up more than 25% from the year-ago quarter, to 15,057 homes.
A glut of repossessed and resold manufactured homes is exactly what the industry in general, and Cavalier in particular, didn't need at a time when the overall U.S. economy was unraveling.
"We've got some very serious issues in our industry," Wilson says. "Sometimes, I'm not sure how we're able to do what we're doing right now. It's extremely difficult."