A housing market that isn’t in decline
In fact, the sector has a track record of performing better in worsening market trends, according to Marcus and Millichap Real Estate Investment Services Regional Manager David Luther.
“It’s a good market,” he said. “It does better in a down market. There’s higher turnover and people have a tough time out buying a home, but the tougher the times, the better the product seems to perform … We’re seeing plenty of action from investors in that market.”
Manufactured home communities are located throughout the country, but nearly 60 percent of new manufactured homes are located in southern states with Texas, Florida and North Carolina leading the market.
According to the September report released by JLT & Associates, a market research company specializing in the manufactured housing industry, the state of Texas has 170 manufactured home communities currently in operation – 27 of those are in Tarrant County. As of September, Tarrant County occupancy is at 74 percent, a 2.8 percent decrease from September 2008 numbers, while the monthly home site rent is $350, an increase of 4.2 percent (or $14) above the September 2008 rate. According to the report, 20 of the 27 communities in Tarrant County increased rents during the past 12 months.
Jim Gaines, research economist at Texas A&M’s Real Estate Center, recently completed an update to his affordability study on the Texas residential market to determine how affordable the sector is for those interested in buying a home. According to Gaines, some 30 percent of the households in Texas cannot afford a home priced at more than $70,000, which is a plus for the manufactured home business, he said.
“Manufactured homes are set to do well,” he said. “They are some of the only housing available in some of the price categories, as many are under that $70,000 or $80,000 mark. Of course some manufactured homes can get on up into the $80s and $90s and some well over $100,000, the majority tend to be lower priced, which means they are – in some cases – the only affordable option for 30 percent of the population in Texas. That makes for a good selling point.”
As defined by the Texas Manufactured Housing Association, or TMHA, a mobile home typically refers to an older product built before the Housing and Urban Development Code went into effect in June 1976. The Manufactured Home Safety and Construction Standard (HUD code) was adopted by Congress in 1976 and helped to create the modern day manufactured home, which can be single or multi-section and is transported to the site and installed. The federal standards regulate design and construction, strength and durability, transportability, fire resistance, energy efficiency and quality. The HUD Code sets also performance standards for the heating, plumbing, air-conditioning, thermal and electrical systems. It is the only national building code.
Shane Causey, president of the Metroplex Chapter of the Texas Association of Manufactured Homes, said there has been a movement in the residential industry as more people are exposed to modern day manufactured homes.
“If we can get people in to see them, they just understand,” Causey said. “There is a predisposition when people first hear because they think of old mobile homes, but that’s not what’s being made today … people are usually very surprised.”
Manufactured housing is the marriage of two industries: the companies that build and distribute manufactured houses, which are single-family homes constructed in factories, transported to a location and installed on-site, and the manufactured home communities, which are either land lease, in which residents own their homes and lease the land they occupy, or site-owned, in which residents own both the home and the land.
The average price for a manufactured home is $46,000, compared with $162,300 for a site-built house excluding land, according to the Manufactured Housing Institute, MHI. Senior communities currently make up about
10 percent of manufactured home communities in the nation, with the other 90 percent open to all ages, according to MHI.
In addition to investors and regular sales, Gaines said it would make sense for the manufactured home sector to see benefits from the federal first-time homebuyer tax credit currently in place, which allots an $8,000 tax credit to first-time homebuyers.
“As long as the housing will meet FHA standards, and most these days do, then yes, there is a segment of the market that is looking for a home in that price point and not able to find it in many cases,” Gaines said. “There is a group that could certainly have been renting for years and years and years, and with the price of a manufactured home, their monthly payments aren’t much different.”
For investors, Gaines said the picture might not be too different.
“Typically if it’s a reasonably located park and well run and the units aren’t run down, you can maintain occupancy, rent and collections and these kinds of properties can be very good. Sure, financing is difficult, but now with seller finance to the buyer, it’s looking better and better.”
Manufactured homes through the years
The mid-1970s through the 1980s was the high tide for manufactured home community syndications. In the 1990s, REITs gained a foothold in the industry whereas, currently, a new breed of young wealth builders are purchasing the middle-tier, manufactured-home communities, which are those with anywhere from 75 to 200 sites. Some buy multiple properties in any given market to promote more efficient management.
The industry ballooned in the early 2000s thanks to its financing, Gaines said, which was a market pre-curser to the subprime loans now infamous in the residential market.
“It was almost like consumer credit lending for the first part of this decade,” Gaines said. “With things like lower credit scores, low down payments, weekly payments. It was very aggressive financing. Now days the financing picture has changed, as it has in every part of the industry.”
Gaines said many of the manufactured homes professionals he deals with say deals happening today are primarily seller financed.
Causey said it “all comes down to financing.”
“Retailers can only carry so much inventory so really, the financing piece is the most important, but investors know what they’re looking for and the manufactured homes are always on their list,” Causey said.
And if the state’s demographics continue along the lines of today’s trends, Gaines said that is sure to be true in the future.
“It’s an interesting segment to watch,” he said. “It doesn’t necessarily follow along traditional residential trends, but it does follow some. In any case, though, it’s a hot market for investors and consumers and I’m sure it will continue to be.”
