“Would you believe where we are after just three years,” Kevin Clayton, president and CEO of Clayton Homes, says about the company’s move into the site builder business.
It’s a business that Clayton is growing rapidly, and he just acquired Highland Homes in early May, a Florida home builder that is the ninth home builder acquired by Clayton in just three years.
It’s all part of an increasing emphasis on site built homes for the low and midprice market, notes Kevin Clayton.
“It’s a market that has an average price point of $318,000, Clayton says, “which is well under the national average of over $400,000.”
Clayton Homes, which runs its site builders under its Clayton Properties Group, a division of Clayton Home Building Group that is based in Maryville, Tennessee, is already ranked 18th on Builder Magazine’s Builder 100 list and rising fast.
Clayton Homes has been named “Builder of the year” for 2019. It’s an award that really pleases Kevin Clayton.
“To think we weren’t even in that business three years ago,” Clayton says proudly.
Clayton is looking to acquire more site builders, but notes they must meet four criteria.
“First, the owner must be willing to stay around and work,” Clayton says. “Second, they must have survived the last recession; third, they must focus on building low and midprice houses, and fourth, but not least, they must be customer focused and really care about the customer experience.”
Clayton Homes was founded in 1956, by Kevin Clayton’s father Jim Clayton, and Kevin Clayton has led the company since 1999, when he took over from his father.
Acquired by Berkshire Hathaway in 2003 for $1.7 billion, Clayton Homes has grown into a diverse builder offering traditional site built homes, modular homes, manufactured homes, tiny homes, college dormitories, military barracks and apartments.
Improvement in Manufactured Homes
Kevin Clayton is also positive about his manufactured homes business, which he emphasis use the same 30-year shingles as a traditional site built home.
“We don’t have metal roofs anymore,” Clayton says. “Our manufactured homes have a lifespan that’s the same as a site built home.”
Clayton is also building a new type of manufactured homes, for now dubbed New Class Homes, which meet Fannie Mae and Freddie Mac standards. By qualifying, borrowers have lower down payment requirements and lender fees. The homes qualify for a MH Advantage loan, and must be “designed to meet specific construction, architectural design and energy efficiency standards,” according to Fannie Mae.
The move dramatically reduces the amount of down payment borrowers have to come up with. MH Advantage loans require a 3 % down payment, down from 5% previously. In addition, Fannie Mae does not charge its 50-basis-point loan-level price adjustment for manufactured housing loans.
“New Class Homes represent only a couple of percent of our revenues right now,” Kevin Clayton says, but he sees lots of rooms for growth.
The overall manufactured home business is strong.
“The manufactured home business is up 6-7 percent this year,” Clayton says.
Clayton emphasized the environmental advantages manufactured homes, which produce far less waste than traditional site built homes.
“All our 42 facilities are ISO 14001 certified, which is all about environmental standards,” Clayton says.
ISO 14001 is the international standard that specifies requirements for an effective environmental management system.
Clayton has moved much of its supply chain in-house, building more of its own components.
“We build our own windows,” Clayton notes.
Why Consumers Buy Manufactured Homes
It’s a type of housing that opens home ownership to a broad range of consumers that are locked out of housing market as traditional home prices have skyrocketed.
“Fifty percent of people we help with a home would not qualify for Fannie Mae or Freddie Mac mortgages,” Clayton says.
A big part of that access to homes is the greatly lower price point. A manufactured home can be purchased for $69,000 and has an average cost of only $116,000 with land.
“In rural America there’s not a lot of apartment options,” Kevin Clayton notes. “Many of our customers have been living with family, and are looking for an affordable way to live on their own.”
Clayton especially notes the popularity of manufactured homes for five-acre ranches.
“Where there’s land, we shine!”
© 2019 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.