Thursday, September 22, 2005

Factory-Built Housing Gets Boost

Talk about the bubble often is misguided. What a lot of people fail to realize is that the whole reason we suspect a bubble to begin with is the ridiculous price of housing, which has been caused primarily by a lack of supply. We're in a housing shortage. Which is one of the reasons I'm such a big fan of factory-built housing. (Consider Warren Buffett's investment in it if you don't trust my judgement.) Ever since Hurricane Katrina I've been saying that this is going to be the moment that makes or breaks factory-built housing. Hundreds of thousands of people are going to be living in these things as temporary shelter and their reaction to the product could mean big things for this type of housing in the future. But if they end up hating it, considering it to be of poor quality, etc... it could be an unfortunate setback for an industry whose time is here and ready for a boom. Here's an excerpt from an LA Times story by reporter David Colker. Colker's story talks about the boost in sales (and stock value) for a Southern California factory as a result of Hurricane Katrina:
Anita Gonsalez, after spending 18 years on the assembly line at Fleetwood Enterprises Inc., can spot a market upswing.

Production lines at Fleetwood are about to hit overdrive after the Riverside-based company received an order Tuesday from the Federal Emergency Management Agency for 7,500 travel trailers and 3,000 prefabricated homes to provide temporary housing for Hurricane Katrina victims.

"This is good for us, for job security," Gonsalez said Wednesday, while overseeing installation of air-conditioning units in travel trailers at Fleetwood's Rialto plant. "But at the same time, I feel so sad for the people who were caught in this."

Fleetwood said the $170-million FEMA contract was the largest in its history, and its stock rose 4% on Wednesday to a nine-month high of $12.44, up 46 cents.

In recent years, job security has been tenuous at Fleetwood. The company has been hit hard by rising gas prices, slowing demand for RVs, and by low interest rates that led consumers to choose site-built homes over pre-fabricated units.

"Certainly it helps us," said Fleetwood Chief Executive Elden Smith, a 30-year veteran, who came out of retirement in March to run the company. But he downplayed the longer-term effect of the special order.

"We have been on a successful track in the last couple of quarters anyway," he said.

Fleetwood has been restructuring, and this month posted a $29.6-million fiscal first-quarter loss as it sold most of its retail manufacturing outlets and its finance unit to concentrate on sales of campers, motor homes and manufactured housing.

Getting a temporary boost from a government order is nothing new for the company. Last year, Fleetwood provided about half of the emergency housing purchased by FEMA after four hurricanes hit Florida.

After FEMA uses the prefab homes and trailers for temporary housing, it sometimes sells them at low cost to the people living in them.

Work on the FEMA contract will not start at Rialto for three weeks, said plant general manager Ron Richardson.

Fleetwood needs to deliver the manufactured homes by Nov. 30, and the trailers by the end of the year. To meet those deadlines, Fleetwood will add nearly 100 temporary workers to its 300-person assembly line in Rialto, Richardson said. New hires will be paid a starting wage of $9.75 an hour.

The 32-foot-long FEMA trailers will have two bedrooms, a foldout sofa, an air conditioner and a kitchen with a larger-than-usual refrigerator and a microwave. Unlike the standard Fleetwood trailers, the FEMA models will be made to hook up plumbing and electricity to centralized systems in trailer enclaves.

— The Boy in the Big Housing Bubble