Nearly a decade after the financial crisis interest rates remain at zero. Fed watchers have been arguing for years that policymakers will soon raise rates, only to see the possibility put off yet again (and again and again). While many believe Yellen and company have stuck with ZIRP due to worries about the impact of a hike on the stock market, a bigger concern might be housing.
Believe it or not, mobile home stocks used to be good places to park your money. Twenty years ago, the so-called “manufactured housing” industry was widely followed by Wall Street analysts, and public companies like Clayton Homes, Champion Homes, and Palm Harbor Homes were all rated strong buys.
Then the roof caved in.
First, the easy credit of the early-2000s housing bubble allowed many first time buyers to choose “site built” homes instead mobile homes. That was followed by the 2008 crisis, when financing for all types of homes, mobile or otherwise, evaporated. Now, US mobile home production hovers around 70,000 units, down from a peak of 350,000 units in the late-1990s.
But a few companies have managed to weather the storm. The top three builders now command a combined 72 percent of the market. Berkshire Hathaway owns the largest of them, Clayton Homes, which accounts for 45 percent of all US mobile home production. The third largest company, Champion, is privately held. Aside from tiny Skyline Corp (SKY), that leaves only one publicly traded option for most stock investors: the second place company by market share, Phoenix-based Cavco Industries (CVCO).
Last week was no picnic for stocks. With oil prices continuing to implode and a rate hike looking more and more imminent, you’d think a Texas-based homebuilder would have dropped along with the rest of the market. Instead, LGI Homes (LGIH) rocketed from $19 to an all-time high above $24 after it demolished earnings expectations.
As they say in sports, that’s why you play the game.
In case you missed it, a foreign company nobody had ever heard of until recently staged a gigantic IPO this past week. But lost in all the hype and hoopla was a much more important development here at home: the beginning of the end of the US real estate slump.
New-home sales in the U.S. surged in August to the highest level in more than six years, a sign that the housing recovery is making progress.
Purchases of new houses jumped 18 percent to a 504,000 annualized pace, the strongest since May 2008 and surpassing the highest forecast in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. The one-month increase was the biggest since January 1992.
The oldest adage in the investment game is, of course, “Buy low, sell high.” The second-oldest is, “Don’t fight the Fed.” And with the August housing numbers, the Federal Reserve’s monomaniacal six-year campaign to reconstruct the real estate sector from the ashes of the subprime catastrophe is finally starting to show results. At the same time, the stocks of major homebuilders like Pulte, KB Home and DR Horton are all down YTD.
Hear that knocking? That’s a little visitor named opportunity.
Once again, I must apologize for the lack of blog updates recently. I’ve been on the road visiting company managements almost continuously for the past several months–first booming Texas, then booming China, then New Jersey and Long Island, then Texas again, and most recently Phoenix. After meeting with dozens of executives all over the country (and out of it, too) in all sorts of different industries–from retail to manufacturing to tech to finance–I was not at all surprised to see this past Friday’s big revision in third quarter GDP.
Almost to a person, corporate managers seem to be quite upbeat these days. So much so that I’m about to say something I didn’t think I would say for a long, long time: believe it or not, real estate is probably a good investment again.