IN, 02/22 ( South Bend Tribune )- Is the manufactured housing industry poised for a rebound?

Billionaire investor Warren Buffett apparently thinks so; his company, Berkshire Hathaway, recently got into the manufactured housing business, acquiring Clayton Homes of Knoxville, Tenn., last year.

Buffett isn't the only one who would stand to gain from an improved manufactured housing industry; northern Indiana is home to numerous manufactured home companies and suppliers.

While no one is predicting a quick, booming recovery for the industry, experts are cheered by signs that the very factors that led to the downturn may be receding.

"I think everyone's cautious and doesn't want to get over-optimistic, but we're seeing more positive signals than negative," said John Guequierre, chairman and chief executive of Middlebury-based Pleasant Street Homes.

For the past few years, however, the negatives have greatly outweighed the positives for the manufactured housing industry.

A steep decline

According to the Arlington, Va.-based Manufactured Housing Institute, 112,978 homes were shipped in the first 10 months of 2003.

Compare that to 1998, when 373,143 homes were shipped. Since then, the number of homes shipped annually has been on a steady decline. The most stunning drop was between 1999, when 348,102 homes were shipped, and 2000, when 250,419 homes were shipped.

So what happened to the once-thriving industry? Experts point to several factors.

In the late 1990s, when interest rates were fairly low and unemployment was too, people who were once prospective manufactured housing buyers were able to afford site-built homes, explained Paul Joray, professor of economics at Indiana University South Bend. In turn, those who in the past couldn't afford manufactured housing had new-found purchasing power, he said.

But when the recession hit, many of those new manufactured home buyers lost their jobs or faced other financial troubles and defaulted on their loans, Joray said.

The massive number of loan defaults and subsequent repossessions contributed to two major setbacks for the industry.

First, financing dried up.

In fact, insurance and finance company Conseco's high-profile bankruptcy stemmed in large part from losses suffered by subsidiary Green Tree Financial Corp. Green Tree, acquired by Conseco for $6 billion in 1998, had the nation's largest portfolio of manufactured home loans.

"There weren't too many players in the (financing) market to begin with," said Bill Burton, vice president commercial banking, 1st Source Bank.

So without Conseco's Green Tree, for many "the financing wasn't there," Joray said.

Compounding the problem was the fact that with so many manufactured homes having been repossessed, the market was glutted, and many buyers opted to buy cheaper repossessed homes rather than new homes.

Bearing the brunt

Dealers and manufacturers, naturally, suffered from the inventory buildup. As the home of a great many manufacturers, northern Indiana was hit hard by the decline.

"The concentration of manufacturers is unquestionably in that South Bend to LaGrange area," said Dennis Harney, executive director of the Indiana Manufactured Housing Association-Recreation Vehicle Indiana Council.

In 1999, a study undertaken for the Indiana Department of Commerce found that the manufactured housing industry provided some $70 million in state tax revenue and, both directly and indirectly, accounted for some 21,000 Indiana jobs, Harney said.

It's not clear exactly how much revenue and how many jobs have been lost since the 1999 study, Harney said.

But it is no secret that local companies have had to adjust. Jobs have been cut. Plants have been shuttered.

The resurgence of the recreational vehicle industry in the past couple of years likely cushioned the blow for many displaced manufactured housing workers, said IUSB's Joray.

"So if we could get a recovery in manufactured housing, that would be even better for employment," he added.

Signs of hope

Experts agree there are indications that the industry has hit bottom and is primed for modest growth.

In fact, the Manufactured Housing Industry is projecting about a 10 percent increase in shipments this year compared to 2003, said Bruce Savage, vice president of public affairs.

One reason for the upbeat forecast is that financing is becoming available again, he added.

There are other factors that inspire hope.

Interest rates are going up. The economy is rebounding. The employment picture is rosier. And anecdotal evidence suggests the number of repossessed manufactured homes on the market is dwindling, said Pleasant Street's Guequierre.

Plus, U.S. mortgage finance agency Fannie Mae and other lenders said earlier this month they have plans to help revive the industry by making mortgages for manufactured homes more affordable.

There's no doubt the past few years have been challenging, but for some companies there may be a silver lining.

"It's given us, as an industry, an opportunity to re-evaluate ourselves," said Sam Weidner Jr., president of development for Elkhart-based Patriot Homes.

Patriot, for instance, has taken a new approach to home design and is working to make its products more appealing to a larger audience.

In the past, Weidner explained, manufactured housing companies were all competing for a relatively small portion of the home-buying market. The assumption was that only lower-income people would consider manufactured homes.

Patriot has rejected that assumption, working to give its homes more amenities and greater curb appeal in an effort to attract those who haven't looked at manufactured homes before, Weidner said.

"We're very optimistic about 2004 because of the direction we've taken with our product," he added.

Weidner recently attended the National Association of Homebuilders convention in Las Vegas, where attendees discussed the need to provide affordable housing without skimping on amenities.

"We can provide that," Weidner said. "We can fill that gap. It's still the American dream (to own a home) and we're trying to help fulfill that dream."

The manufactured housing industry has endured ebbs and flows before, 1st Source's Burton said, but it has a lot to offer homebuyers, particularly as quality improves.

"From a value standpoint -- cost per square foot of a house -- a manufactured house is a better buy (than a site-built home)," he said. "There is certainly a place for the manufactured housing industry. It absolutely has a future."