San Diego Housing Bubble News and Analysis

I'll post back in a year with.. how theyre DOING is what I meant to say.. that is if I'm still holding.

Don't take this thread as a prophetic attempt, I'm just thinking maybe it could become interesting topic.

Those two you listed got killed recently. One lost 66% and the other lost around 75%. It might be a good time to start looking into them. Maybe after they drop a little more. I would say, wait till it get to a point like Lucent and Nortel were at when they're in their $0.50-$0.75 range. Good bottom feeder stock that get oversold.

Thanks for the info asianautica.. My question to you is, at $3.00 CAV is at 4x earnings.. that's pretty darned good if you feel that the company has alot of room to grow like I do... That would be like lucent being at 50cents.. I know P/E isn't the holy grail.. but...

I guess you're right though, should probably see if these are good bottoms.. these two probably aren't going anywhere too fast... No sense in overpaying, especially when I can be using cash in the meantime in my more volatile favorites like energy and mortgage options...

I'm sure you already know this, but every industry have different metric for P/E and how much is expensive/cheap. So, that 4x might look cheap compare to other sector but in line with its peer. It would make more sense to compare it to its peer, here are some P/E i pull up from builders: KBH = 4.16, MTH = 3.64, TOL = 4.95, and the who builder industry average P/E is 4.25. So I would be very careful touching those two that you listed at the current point. I think prefab builder doesn't have as big of a margin as the traditional builders, so they would have to sell much more to match the profit the traditional builders get.

I just checked out KBH KB Homes profit margin and it's at 9%.. then I checked CHB Champion Enterprises and their profit margin is at 11% with 77% return on equity.. Cav's is at 5%.

I think we'll need a larger sample and more information to determine who is more profitable. I would think the larger company would have a better chance at having a vertical integration to protect profits, but I would think these prefab homes would have more profit in the price being that they are even more cookie-cutter in their philosophy than someone like KBH.

Cav's book value is 5 cents less than the current share price!

so they would have to sell much more to match the profit the traditional builders get.

I'm not really looking at matching profit, I'm just looking for growth.. KBH's market cap is 60+ times that of CAV.. so if CAV could have 1/10th the profit of KBH I'd be one happy camper!

I personally would be some what reluctant to buy into the manufactured housing sector. While it may make sense from an affordability issue and baby boomer play the biggest drawback is primarily this - financing.

Manufactured homes seem to be "tainted" with regard to traditional financing sources. They don't appear to have a great track record and this could be a very big component of this industry's future.

Make sure you do your homework before investing too heavily on the manufactured home sector.

Manufactured homes seem to be "tainted" with regard to traditional financing sources. They don't appear to have a great track record and this could be a very big component of this industry's future.

Let me try a quick rebuttal if that's what it's called..

Well from what I understand 'used cars' aren't exactly the most exciting thing for banks to finance either.. but it still happens.. If banks are going to survive they'll have to be loaning out money.. to buy what? How about a non-speculative inexpensive place that someone will be living/have an interest in keeping?

Or by 'tainted' did you mean that people think of manufactured homes as trailer parks? If so sure.. seems like everything over the last 10 years has been all about pushing people into more expensive purchases by making them feel insecure or afraid about something... I see this next cycle as being the distillation of 'needs' from 'wants'.

The housing market is slowing. Why would any sector of the housing market be a good buy, whether it is carpets, air conditioners, roofing tile, or manufactured homes?

Second, the biggest cost of a home is land. Why would anyone buy land now for their manufactured home? I think buyers are on the fence on buying land now.

Leasing space in a trailer park is expensive too. In Poway, we have several trailer parks. Yesterday, while at the dog park, I met a lady who is an accountant. She pays $750/month for her space. She paid $40K for her trailer, and thinks it is worth $80K now. I think it is a very high rent.

I would check out the realistic prospects for manufactured homes, not from some manufactured home sales rep, but from someone you trust to tell you the truth.

As asianautica said, each industry has its own PEs. Look at Chevron with a PE of only 6 or 8 (??). Oil is going up, but such a low PE. Car companies have low PEs too. Software companies have much higher PEs.

Buying any stock now, you are running against the crowd. In a declining market, you are betting that your stock is going to go against the crowd. It is like running into a stampede of cattle. Maybe you will emerge on the other side, but most likely, not.

I don't see any reason to buy any stocks now, except a sure winner like an energy company that is undervalued. I would run far from anything housing related. That's just me....

KBH might not be a good comparison, but MTH is. Just looking at the data, I would rather buy MTH than CHB.
MTH
Revenue (ttm): 3.56B
Qtrly Revenue Growth (yoy): 39.90%
Gross Profit (ttm): 706.99M
Profit/Rev = 19.86%
CHB
Revenue (ttm): 1.43B
Qtrly Revenue Growth (yoy): 16.90%
Gross Profit (ttm): 216.84M
Profit/Rev = 15.26%
MTH is a small but traditional builder. So that shows CHB is in the middle of the pack I think.

The 'where are people going to live' is a valid question.. if rents and home prices are up what do you do? Especially if you're retired and you need to lower your costs..

I challenge people to come up with a better solution for the living needs of this demograph: *dont take my math too literally

60 year old couple with 500,000 in the bank.. no need to commute but would like to be close enough to see children, grandchildren say within 100-200 miles

Rent?
2 bedrooms are now renting at $1500.. can you soak that up? Over 20 years that's around 400k..

Buy old cheap house?
Interested in doing maintenance on an older house.. what else can you afford? Where are you going to buy? Crappy weather.. I hope you're well insulated!

Buy Manufactured home?
Spend 60k on a manufactured home.. buy 30k lot in Borrego Springs.. Spend 20k hooking up water, gas, electric.. guess what, you're done! 110k... Add 50k for whatever else you want.. done at 160k.

Second, the biggest cost of a home is land. Why would anyone buy land now for their manufactured home? I think buyers are on the fence on buying land now.

Maybe in San Diego.. If you paid me enough I'd send you a list of at least 50 places where you can buy the land for less than most people spend on a vehicle.

As asianautica said, each industry has its own PEs. Look at Chevron with a PE of only 6 or 8 (??). Oil is going up, but such a low PE. Car companies have low PEs too. Software companies have much higher PEs.

Sorry but you can't just say 'oil is going up' and have it work... Not that I absolutely disagree, but first nothign is 100% and second if you're using it as a reason against be fair... What is more important for a person especially a retirees survival, gas or a place to live?

The reason I want to buy these stocks is that I see demand increasing.. just like you claimed that 'oil is going up' that gives you the vision to buy energy companies..

We're not talking about beanie babies here, despite the housing market crashing people are going to need to live somwhere.

Don't retirees move in with their children, or to retirement communities, i.e. into one of those vacant condos or retirement homes? Maybe the AARP has some surveys on this. The poor ones get a trailer and rent a trailer park space. You might be on to something, but I would research it a little further. AARP or other demographic studies, or talking with the elderly.

http://finance.yahoo.com/q/bc?s=WGO&t=5y

Winnebago is doing just fine even with these gas prices! This tells me something!

The American auto dealers are having high sales too, but due to heavy discounting. Winnebago's quarterly revenue growth is -13%, and quarterly earnings growth is -25%. Their stock price will come down soon enough.
http://finance.yahoo.com/q/ks?s=WGO

anxvariety, you are definitely on to something. Population is growing, and where are all these people moving? Are they squeezing 3 people/bedroom, to save money? Going to cheaper cities? The trend is for more elderly to fall into poverty levels, so they would buy a trailer in a Yuma trailer park, not a $800K home in FL. Just my thoughts, I could be wrong. I haven't researched demographics yet.

My landlord is savvy with these things. After Hurricane Katrina, be hought rental property in Baton Rouge. He is cash flow positive, and the rental demand has pushed up rents and home prices. This move had not occured to me.

The trend is for more elderly to fall into poverty levels, so they would buy a trailer in a Yuma trailer park, not a $800K home in FL.

If solving poverty is a high priority issue, I'd love to help solve it! I would help them find something as described above for 150-200k.. that's a pretty simple solution.

Plus, maybe others can correct me if I'm wrong.. but aren't dry climates better for the elderly? Aren't there less allergenics and germs? This is just a guess, maybe it's the opposite.. Even if true I guess one could argue that heat is bad for elderly.. but I feel that overall desert living is pretty underrated.

My landlord is savvy with these things. After Hurricane Katrina, be hought rental property in Baton Rouge. He is cash flow positive, and the rental demand has pushed up rents and home prices. This move had not occured to me.

PS, FEMA bought a bunch of manufactured homes from CAV and others just after Katrina.. I thought that was interesting and sort of related to what you're talking about.

The FEMA contracts accounted for 419 shipments during the quarter, or about $13 million in revenue, he said.

"Aside from FEMA business, revenue for the first quarter still advanced from the year-earlier quarter even as non-FEMA home shipments declines slightly," Roberson said. "We are pleased that Cavalier remained in the black for the first quarter of 2006, which is traditionally a seasonally slow period for our company and the industry, and one that in recent years has produced a net loss for the company."
http://birmingham.bizjournals.com/birmin...

I think the exodus of retiring boomers from the metro areas may prove to be a boon for middle America. Some of these agricultural towns that have been dying off because of lack of employment can reorient into retirement-friendly communities. Good for their business communities and tax base and appropriate for someone looking for a slower pace of life. There are still lots of towns in the U.S. where a retiree can buy a property for less than $100k and get away from the urban/suburban lifestyle.

Yes, and some of those places are in California! Check out Adelanto.. inland empire inexpensive real estate(although it did boom recently) where you can live semi-remotely yet still have a commute-able distance to LA.

A quick scan of AARP showed that the West has the highest rates of elderly. One study found that most boomer plan to retire in place. They want to continue living in their homes, work part-time, keep their health plan and doctor, expect their kids to move in, care for their grandkids, and avoid the shuffle of a move.

In my extended family, I have seen the choices made depend on income. A retirement community choice is an upscale Del Webb community or a trailer park. Other choices are maintaining one's home, moving in with one of the kids, or a combination of retirement living in a Southern state during the winter and returning home for the summer.

The elderly definitely prefer the hot climate. It is good for their bones, as well as their lungs. The ones who can afford it, stay in the South only in the cooler months, and go to their previous home in the hot summer.

I think Yuma is growing rapidly for this reason. It is pretty cheap.

I think this is worth researching. Money will follow the boomers.

The problem in the survey is that most boomers said they would remain in their homes. But how many have their homes paid off? Many took on additional loans...Many boomers thought they could sell their homes to fund their retirement. Talk about dashed dreams!

On my way out so making this quick.. but I have a friend that works at a company that specalizes in loans to elderly.. it allows them to cash out equity and the balance isn't due untilt he person dies.. probably a rip off, but I thought it was interesting that people would do that.

PS, that sounds about right as far as what a retired person might want.. but I think cost is going to be a big factor and might cause them to find some happy mediums on the proximity to family and desire to work part time factors... like maybe they'd move a little more remote where they would probalby make the same part-time, but have smaller expenses.. sure it's just a guess without running any real numbers or surveys.

The problem in the survey is that most boomers said they would remain in their homes. But how many have their homes paid off? Many took on additional loans...Many boomers thought they could sell their homes to fund their retirement.

You've hit the nail on the head. I don't think you can entirely listen to what people *say* they're going to do - they often have no clue. I often here that:

a) Boomers are using their home as a retirement piggy bank.
b) Boomers want to retire in-place.

If you want the equity, you must downsize or leave to somewhere cheaper.

A company's only got a low P/E until the "E" goes away. The reason many cyclical companies trade at seemingly low P/Es - like the builders right now - is because their "E"s are about to go in the toilet, thus ultimately raising their P/Es to more "normal" levels. Virtually all housing stocks are going to suffer going forward - manufactured and otherwise. All housing and related stocks are a sucker's bet right now - this housing correction is going to play out over several years.

davelj, what I'm trying to say I think that manufactured housing companies will grow as traditional housing market deflates. I'd provide some reasons, but I already have.

I've noticed that a lot of retired folks are moving out to remote areas to retire; they get a nicer house on a larger lot at a lower price than they would in an area with more jobs and city culture.

The only problem is that in these far out areas the ONLY way to get around is by DRIVING. Has anyone noticed that older folks are not the best drivers? Maybe they can pull it off when they're in their 60's and 70's but what happens after that? Are they all going to die in car wrecks driving to doctor's appointments or to visit their families? How does this make sense? Shouldn't older folks live in communities with public transportation so than can be independent but not be a danger to themselves and others behind the wheel of a car? What are the nation's rural roads going to be like in 10-20 years? Better make sure you are driving a safe car eh?

Has anyone noticed that older folks are not the best drivers? Maybe they can pull it off when they're in their 60's and 70's but what happens after that? Are they all going to die in car wrecks driving to doctor's appointments or to visit their families?

Hey I have an idea.. how about their families visit them????? There are mobile doctors also...

Suprisingly a few desert areas have a very strong medical presense due to the somewhat rare but usually severe off road activity accidents.

Poor air quality and sickness are two things I'd like to limit my exposure to when I'm older..

A lot of people associate mobile/modular homes with being substandard, and there is some of that. But increasingly there's also some of this factory built housing that's actually superior in quality to what you'd find at a lot of our local subdivisions. Better materials, better fit, more uniform craftsmanship.

I've been in a few of these homes and the only difference you'd notice is that they are usually built with a raised foundation rather than a slab. We're talking about 2x6 framing, 10ft interior ceilings, solid core doors and everything else that's important. If anything, they're more structurally sound than most of the 2x4 tract construction we get around here. They're built in a controlled environment by a full time crew, using stock plans with several variations and finishes and they get several QC inspections and an enforecable warranty. You wouldn't mistake them for a luxury home but then again most of the so-called "luxury homes" here are but dressed up tract homes. Not everyone needs a 4,500 SqFt big box.

I read one article a while back that factory built housing now comprises something like 30% of the market on a nationwide basis.

If we were really all about affordable housing, we'd be building a lot more projects featuring these units in the outlying areas.

I don't know if I've mentioned this here before, but I saw a really interesting news story on Real Orange a few days ago.

Apparently, as a result of our trade with China, there is a huge surplus of sea containers. More arrive than get sent back, so they're piling up in places like the Port of LA, and people in houses next door to the shipping yards are starting to complain that thier daylight is being compromised by the huge piles of these things.

So, some enterprising people are starting to buy them for pre-fab housing units!

Not so stupid, it seems. These containers are 9' high, are already insulated, have air conditioning units (cold storage), are virtually bug-proof and normally have a hardwood floor in them. Its simple to cut out sections to make dooways and windows, and they can be attached to each other to make larger units.

They look pretty cool - here's a link to an article (not the Real Orange one):

http://www.makezine.com/blog/archive/200...

Bugs, could you elaborate on the poor construction of 2x4 tract homes. The house we built was 2x6 construction, and we watched it go up and knew it was well built. But without seeing your home built, how can you tell the quality? Are these low quality homes limited to low income areas, or do they exist also in the expensive areas? What are the ramifications of buying such a house?

PS I have read the same thing that bugs elaborated on. The deal with alot of the modular homes that are factory built is that everything is built in then factory then shipped and built. So walls are all built with insulation, conduit, even plumbed. Since they are on an assembly line they are all built to a standard process that has a higher level of QA then a home built on site by construction workers. I am not saying that the construction workers to a bad job. I am saying though that assembly line construction in general has lower tolerances for error. All the walls come out the exact same size, etc... So if the slab is even then the modular house will be built in a fraction of time, generally two weeks, and yes it very often fits together better so to speak.

Also I saw the special on the architect who was designing homes out of shipping containers. Very interesting stuff.

Last but not least, lending criterion has been much more strict on manufactured homes so I believe that you will not see many foreclosures at all on manufactured housing.

My only qualm about manufactured housing as an investment is that I think it is a better investment in a ROBUST housing market so you can tap into the buyers who cannot afford the market. Now that the market is declining I feel that the entire market psychology will even extend to even touch this market as well.

Just my guess.

To answer the questions about framing, you'll find very few subdivisions here that weren't built with 2x4 framing. All of Bressi Ranch is 2x4; everything I've seen in San Elijo and 4s Ranch is 2x4. It's everywhere. It's not just the framing either. The roof trusses are 2x4, the fopundations are pured at the minimal depth; the plumbing and electrical schedules are average at best.

That's not bad in and of itself; there's nothing wrong with "Average". It just cracks me up to see the words "luxury", "custom", or "quality" used in connection with these projects. People from back east look at this stuff and just smirk.