For the fourth consecutive month, pending home sales of previously owned homes are on the rise, providing a positive sign that the housing market has already bottomed out. Modular homebuilders are looking to capitalize on falling home prices and historically low mortgage rates, which are enticing homebuyers. Modular homebuilders look to drive sales by attracting the growing number of price sensitive homebuyers that want to get more for their dollar. The increase in demand should lead many modular homebuilders to reduce prices to capture market share over on-site homemakers. Unlike on-site builders, modular builders have the flexibility to cut prices because of the cost effectiveness of constructing in a standardized warehouse setting. Lower material and operating costs create cushions for margins that can be squeezed to drive sales. As a result of a growing population of price-sensitive buyers and steady margins, the industry should expect gross product growth starting in the fourth quarter of 2009. |
In addition to being less costly, modular homes also attract homebuyers because of their environmental friendliness. Modular homes use less waste and are designed to use minimal energy. In today’s carbon footprint conscious society the value derived from cutting energy costs (and thereby emissions) cannot be undervalued. Once the recession has passed, modular home building can expect long-term revenue gains from the “green” consumer market.
Until the housing market makes a substantial recovery, distressed homebuilders will continue to exit the industry by selling. As a result, deal flow in the third and fourth quarters of 2009 will primarily consist of low valuation deals. Because the industry is highly correlated to the overall economy, we do not expect higher homebuilding multiples until unemployment declines and the economy as a whole picks up in the first quarter of 2011. |
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