2017 Home Buyer’s Outlook
Note: Annually at the beginning of the year I offer here my assessment of the manufactured housing landscape (along with a few suggestions) to help home shoppers better understand the market conditions they will likely face in the next 12 months. My comments also touch on the state of the industry, which industry professionals may find helpful, but my principal focus is helping inform consumers, especially first-time buyers, who are considering the purchase of a manufactured home. – John Grissim
The manufactured home industry in 2017
Historically, the years when a new U.S. President takes office are typically accompanied by some degree of unpredictability, including economic forecasts for sectors like the housing industry. Given 2016's already wildly unpredictable politics, more of the same in 2017 comes as no surprise. In the case of the incoming Trump administration, however, unpredictability in the housing market may reside in how much better, not worse, that sector may fare. Regardless of who won the election, housing (including manufactured homes, or MH in this report) was already poised for solid growth in 2017. Economists predict that sector will continue a steady recovery, with an acceleration of growth over the next two years.
Contributing to the prospect of that acceleration, Congressional Democrats appear to be in rare agreement with President Trump and Congressional Republicans on an ambitious plan to invest in repairing and upgrading the country's vast infrastructure, including highways, bridges and airports, potentially creating nation-wide hundreds of thousands of new family-wage jobs. This would in turn result in a surge of new homebuyers entering the market—for both site-built and manufactured homes.
The National Association of Home Builders (NAHB) predicts a strong year ahead, estimating sales of existing homes at 6.6 million plus 160,000 new single-family homes sold—up more than 12%.
As for the manufactured housing industry, if you are a first time shopper for a manufactured home (a.k.a., a mobile home, or a HUD-code home) the following brief recap of recent history provides a useful overview of the current industry landscape:
Unlike the site-built housing industry which crashed with the Great Recession of 2008, manufactured housing had already experienced its own suicide binge (i.e. housing bubble) during the 1990s (also abetted by Wall Street). Since 2000 when just over 250,000 manufactured homes were produced, the number declined by nearly 80 percent. The period 2005 to 2011was especially brutal, with total home sales dropping 65 percent, from about 147,000 to just over 50,000. (As bad as that was, sales of new single-family site-built homes fared worse, falling 75 percent from its peak in 2005).
In 2011, the MH production numbers finally turned around and have continued their upward trend. Though the final numbers for 2016 are not in, the cumulative numbers through October 2016 totaled 67,043 homes, up 13.8% over the same period in 2015. The total for 2016 will almost certainly break the 70,000 threshold. These are healthy numbers.
Not surprisingly, the MH industry contraction during the recession brought with it a lot of bankruptcies, closures, mergers and acquisitions. As a consequence the industry landscape today is markedly different than it was before the recession when more than 60 companies nationally were building homes in 195 production facilities around the country. Currently, only 46 active corporations remain, while the number of factory production lines has dropped 34%, to 127 (a loss of 68).
One upshot of this shake-out is that here in 2017 roughly 68% of the MH industry is now dominated by three major producers and their subsidiaries: Clayton Homes, Inc. (with a market share of 41%), Champion Home Builders, Inc. (15%) and Cavco Industries (12%). Of these three, Cavco Industries, Inc., headquartered in Phoenix, Arizona, has been the big newsmaker, with major acquisitions of well-known brands, including Fleetwood Homes and Palm Harbor Homes, greatly extending its national market reach.
Clayton Homes, Inc. is far and away the dominant player. Not only is its market share way more than its two nearest competitors combined, but the company also owns two major banks—Vanderbilt Mortgage and 21st. Century—that specialize in retail MH loans sold through dealerships which together account for 35% of all MH home loans. In fact, annual combined profit from the two banks significantly exceeds that from the total of homes sold from Clayton and its many subsidiary builders.
Note: details about these and other industry updates, including revised company listings, are available from this web site exclusively to purchasers of The Grissim Ratings Guide to Manufactured Homes. (click on the tile “Ratings Guide Updates” on the left side of the home page).
All three producers are financially stable and well positioned for growth. There may be a few failures among the smaller producers comprising the remaining 32% of builders, but those who survive will prosper in their respective regional niches.
Average retail price of new manufactured homes sold
The most recent official numbers available are for 2015, but the 2016 numbers are on track to be very similar, in most cases showing only a very small incremental price increase. In the U.S. as a whole, the average sale price (not including land) for a manufactured home (which includes both single-section and multi-section homes) was $68,000. Single-section homes alone averaged $46,500, while multi-section dwellings averaged $86,700.
Here's a breakdown of several regions (again, these figures are for 2015, the most recent year tallied). Prices are in dollars:
| Region | Total | Single | Double |
|---|---|---|---|
| Northeast | 72,100 | 50,700 | 90,600 |
| Midwest | 60,800 | 46,300 | 83,900 |
| South | 65,100 | 44,600 | 82,700 |
| Mountain West | 75,900 | 48,400 | 95,600 |
| Pacific West | 101,100 | 44,400 | 106,700 |
As these numbers indicate, prices can vary considerably by region and state. In Texas, where by far the most MH dwellings are sold, the averages for Total, Single and Double are: 62,400, 45,300 and 83,600, respectively. In California, ranked eighth in the top ten (for MH homes sold), the corresponding averages are: 109,000, 44,400 and 106,700.
Note that the average sales price in California is over $46,000 more than its Texas equivalent. This disparity is largely due to consumer demographics. Texas consumers, like MH buyers in much of the Sunbelt states, are lower-income, entry-level home-buyers for whom low-cost affordability is the primary concern, whereas California MH homebuyers tend to be from a higher income bracket and able to afford both upscale options and the higher quality construction features of the most popular models.
How the Dodd-Frank Wall St. Reform and Consumer Protection Act will affect you
In 2010 Congress passed the Dodd-Frank Act in response to the 2008 financial collapse. A slew of new laws came on the books to prevent future financial abuses while protecting consumers from predatory lending practices. Here in 2017 those laws have been translated into new regulations that affect both MH buyers and retailers who sell the homes.
Unfortunately, while well-intended, several key regulations mistakenly failed to account for the unique characteristics of manufactured homes—two in particular: almost all new (and many used homes) are sold exclusively through retail dealerships (much like car dealers), and many of these are sold for placement in manufactured home land-lease communities (a.k.a., mobile home parks) where the homeowner doesn't own the land beneath the home. Instead, these homes are considered personal property, or "chattel," the same as a car, RV or boat. Loans on these dwellings, called chattel mortgages, have interest rates significantly higher than regular home loans.
The result is that entry level MH models in the $20,000-$30,000 range (are treated the same as homes costing ten times or more that are sold as real estate (i.e., where the home and the land under it are regarded as "improved property." One unintended consequence of this mistake is banks and other lenders, effectively prevented from exceeding an interest cap, can't make any profit. The result has been all MH financing under $20,000 has been wiped out, even if the home buyers has excellent credit and cash for a down payment.
Elsewhere, the new regs prevent a dealer or sales person from recommending a lender to a customer, even if that lender is clearly reputable and has the best financing to offer homebuyers. Dealers complain that this and other restrictions make it very difficult for them to provide assistance to their customers. They have a point, but one need only recall the crazy go-go years of the 1990s when the entire MH industry was rife with abuses involving every possible way to screw the homebuyer, take the money and run. Ironically, the MH industry had largely cleaned up its act by 2005, but then the mainstream housing bubble, with all its shenanigans, kicked in, eventually taking MH along with it when it ran off a cliff.
The hopeful news is that, following a successful effort by the MH industry, a bill to correct these problems passed the House of Representatives last year. Since then it has languished in the Senate, but with the Republications now controlling all three branches of the government, the MH industry is optimistic that the bill could become law by the end of 2017. In the meantime, homebuyers may have to deal with a few more hurdles, burdensome regulations and requirements—all owing to Dodd-Frank—but in my view, looking at the overall picture of the devastating housing collapse of 2008, it's a small price to pay for long-overdue consumer protections.
Some recommendations on specific buying scenarios
The Grissim Buyer’s Guide to Manufactured Homes & Land contains detailed information and advice on every aspect of selecting and purchasing a home, but here are several suggestions to keep in mind:
First, I should state here a core opinion I hold about manufactured housing: while a manufactured home (or MH in this article) can be an excellent high-quality dwelling comparable to a site-built residence (and at a lower price), at least 60% of all manufactured homes built are cheaply constructed, plain looking (i.e. looks like a mobile home), show significant deterioration after five years, and if not legally tied to the land as improved real estate, will not appreciate in value and will be very difficult to sell because banks are loathe to write loans on these types of “used mobile homes.”
Having said this, I would add that I am no elitist. I will never disparage low-end manufactured homes per se, because they answer a huge need. One of the great things about manufactured housing is that it can provide basic shelter for those who otherwise would have no home at all. If properly sited and well-cared for, even the most humble single-section home can be decent affordable housing.
As for where I got the 60% number, it derives from an unscientific calculation involving my estimate of the number of homes built annually with a Grissim Ratings Guide construction rating of less than 5 (on a scale of 1-to-10, ten being the highest quality), together with my more than 15 years of researching and evaluating manufactured homes, and regularly talking to industry insiders I trust whose perspective I respect. Who knows, the percentage may be closer to 65%.
Thus, these recommendation:
- If at all possible, restrict your home search to the remaining 40% of manufactured homes that are well-built and feature-rich.
- Shoot for a Grissim construction rating of at least 7. Bear in mind you can start with a home model that has a 5 or a 6 rating and add options as necessary (e.g., thicker exterior walls, steeper roof pitch, higher rated insulation, double-pane windows, residential sheet rock walls, higher quality carpets, superior brand name appliances, wood cabinetry and Energy Star packages) to upgrade the construction rating to an 8 or a 9. Both my guides contain a table that breaks down construction features that can help you with your choices.
- If the manufacturer of the home model you desire can build it to the modular code, not the HUD code (and a great many do), and you can afford the 15%-20% extra that doing so will cost, have your home built to the modular code. Here's why: Modular code homes are built to local site-built building codes and are considered by mortgage lenders as identical to site-built homes. You'll have an easier time getting financing, and likely at a lower interest rate, the savings from which will go a long way to paying for your higher purchase cost. When the time comes to sell, your home will not be regarded as "a used mobile home," with the negative perception that comes with it (including a low resale price). Rather, your home will be regarded as "an existing residential home," just another real estate listing. You'll get a higher price and the buyer will have an easier time getting financing. Note: for more on what a modular home is, go to http://grissimguides.com/glossary.htm
As the above suggests, buying a new manufactured home you order from a dealership to be made in a factory to your specifications is more challenging than simply buying an existing site-built home. With the latter dwelling, whether new or years old, you have no choices—these decisions were all made when the home was built, take it or leave it. With a manufactured home, you’re faced with a learning curve as you get up to speed on many construction components and fixtures so you can make intelligent decisions. In some ways you could consider yourself a developer.
Now, the good news: this industry is capable of building a really good home, fully comparable to a site-built dwelling, at a lower price, and there has never been a better time to purchase one. Moreover, buyers who can pay cash (after having sold their previous home, for example), have an even greater advantage, because they can get a terrific home at significantly less cost than a new site-built home without having to pay the typically higher interest rate or a one-time fees often associated with new manufactured home loans. For example, many banks routinely charge 1% more in discount points (a loan fee due at settlement) to a customer for a manufactured home/land real estate loan. Many also add 1% to the interest rate just because the home is a manufactured home.
Lack of financing for MH a persistent problem
Here in 2017 the MH industry is better situated going into a new year than it has been in years. This said, the biggest challenge this industry faces, even more than the mainstream housing industry, is the lack of financing at good rates for home buyers, even for those with good credit. As I described above, this is especially true for those wanting to buy a new home in a land-lease community where the homeowners rent, not own, the land under their homes. Their only recourse is a personal property loan (or chattel loan), frequently called "retail financing" or a "home only" loan.
As a rule of thumb, for this type of loan, you need at least a credit score of 740-750 before the banks—at least those who don't specialize in MH lending—will consider you. And you can expect to pay an interest rate of at least 8% or 9% (and as high as 13% - 14%) for this type of loan. At this writing, the average interest rate for an MH personal property loan (or home-only loan) is just under 10% for creditworthy customers. Compare that with current rates under 5% for a conventional 30-year fixed home loan—half-the cost of a chattel loan.
In contrast, consumers who plan to site their manufactured home on a permanent foundation on land they own (and which will be legally tied to the property and taxed as improved real estate just like a site-built home) have much better chances of getting financed, and at rates comparable to those for site-built homes.
Tips for maximizing a manufactured home's loan elegibility
This said, keep in mind that if a manufactured home does not meet the specifications for a permanent foundation, landscaping, decks and porches, a minimum roof pitch (usually 4/12 or higher) and other elements associated with a site-built home, you will likely not qualify for a construction loan with a local bank, and may have to go with a national lender who specializes in manufactured homes. In that instance, you may find yourself paying a higher interest rate (around 8% or more) compared to, say, 5-1/2% for a comparable site-built home. This interest increase can easily put a home buyer’s monthly mortgage payment out of their reach, negating the significant cost savings a manufactured home has over a site-built dwelling.
...and for homeowner's insurance
Also, keep in mind that some national home insurance companies are reluctant to sell home owners insurance on manufactured homes that do not meet certain minimal construction criteria such as a permanent foundation and a minimum roof pitch of 4/12 (that is, a four inch vertical increase for every linear foot). Most manufactured homes have a 3/12 roof pitch).
Lower home prices during the recovery?
I am regularly asked if the Great Recession resulted in lower prices for manufactured homes compared with the price spreads during normal economic times. My answer: a little but not much. Homes with high construction quality have changed little in price, but the bleak dog-eat-dog landscape during the lean years forced many manufacturers to hunker down and survive by offering lower quality homes at lower prices, because the typical MH buyer is primarily price driven, especially those who can only afford low-end, entry level homes.
This strategy entailed lowering construction quality and retail prices. Nowhere is this strategy more evident than in the coastal Sunbelt states of the Southeast—from Georgia to the Gulf Coast states and Texas where some companies are offering basic single-section homes for as low as $25,000, and double-section homes starting at $32,000—“Bubba houses” as some industry wags call them. Clayton Homes in particular capitalized on this strategy, catering to what could be called the Duck Dynasty demographic (i.e., viewers of the immensely popular A&E Louisiana-based reality show, Duck Dynasty) that ran for 11 seasons (it ended this year). The strategy worked. As one veteran of the Southeast market explained to me, “When business is good, low-end sells good, but when business is bad, low-end sells better.”
Thinking of buying a home in a land-lease community? Look for "resident owned"
Roughly 30% of new manufactured homes sold are placed in land-lease communities (a.k.a. manufactured home communities or mobile home parks) and financed using a personal property loan. One of the longest chapters in The Grissim Buyer’s Guide to Manufactured Homes & Land is devoted to leasing a home site in a land-lease community. Here are a few tips for 2017:
In recent years a new ownership model for these communities, called Resident Owned Communities has been gaining popularity, and it’s a great concept that protects the residents from almost all the downsides of renting from a park owner (two downsides in particular: annual rent increases and the surprise sale of the park to a developer or corporation whose interests are much less sympathetic to the park’s tenants).
A resident-owned-community (ROC) which, as the name suggests, is owned by the residents who live there. This may be a cooperative or a condominium arrangement, but such things like rent increases and fees are mutually determined by the shareholder members. In short, you as a resident homeowner are part owner of the community. I highly recommend ROCs.
Another type of land-lease community is one owned by a non-profit corporation whose mission is providing affordable housing. These are often good deals. The housing tends toward the low end but these are typically close-knit, caring neighborhoods of residents who have been carefully screened. These communities can work well, too. For starters, for their non-profit owners are not profit-driven.
A word of caution about corporations
Be very careful about communities owned by large corporations, which have no souls. Some are quite good, others awful to the point of being predatory. These companies exist to make money for their shareholders and one way is incremental annual rent increases (usually in the 4%-5% range) that in a few short years can really put tenants living on fixed incomes in a bind. Research carefully.
Be assured that the vast majority of the nation’s 50,000 manufactured home communities are owned by mom-and-pop proprietors who are good folks and who do an excellent job of protecting everyone’s interests, especially avoiding excessive rent increases. Still, when doing your research, be sure to talk to park residents (privately out of earshot of management) to ask questions about recent rent increases and related issues (see the Buyer’s Guide for the full list).
Avoid communities that are near to, or adjacent to, neighborhoods where there is expanding commercial development and similar growth. The pressure will likely be on the community owner to sell out to developers for big bucks, leaving the residents owning homes they are forced to move (good luck finding another community willing to take in a “used mobile home”—most won’t).
Last, if the manufactured home you’re looking at is a 1986 two-bedroom junker ready for the dump but the site has a million dollar view of Santa Monica Bay, the “lease” is month-to-month, and the rent is protected by a rent-control ordinance, don’t be surprised if the asking price is $300,000, the rent $1,250 a month, and there are three real estate agents and their clients waiting in line behind you. Ah, California....
And there you have it. If, despite the buyer-beware cautions you’ve read here, you wonder why I am so enthusiastic about manufactured housing, and why I firmly believe it is the best-kept secret in American housing, it’s because I myself am one very satisfied manufactured home buyer who saved a bundle on my new home and has enjoyed watching the home appreciate right along with all the site-built dwellings around him.
Wishing you the best of luck with your home search.
–John Grissim