Issue link: http://read.dmtmag.com/i/755715
DECEMBER 2016 18 THE JOURNAL Ask Eddie BY ED HICKS DEVELOPMENT MARKETING Is now a good time to consider building a new m/h community? Jacob J. Clearwater, FL To build or not to build? And perhaps to "take up arms" against a sea of inadequate home financ- ing issues, with a poor public image; are those the "rubs"? That "IS" the question? As a once significant part of the nation's hous- ing industry with as many as 30% of all single fam- ily homes built, factory built home construction is currently at an all time low with less than 5%. In- terestingly enough however, new apartment con- struction is rapidly increasing to take advantage of many families who have been displaced from their homes, and an increasing number of families who can't qualify under newer, tighter, home financ- ing underwriting. Apartment vacancies are as low as they have been anytime in the last 15 years. But where does manufactured housing fit into the picture? There hasn't been any significant new community development in the past 11-15 years. Why? Well first of all, the relatively rapid rate of defaults on chattel mortgages for homes sold into land lease communities left lenders with inventories of repossessed homes, and capital markets with a "bad taste in their mouths". Many of these repos- sessed homes were sold at deep discounts to new community residents, and others were removed from the communities and taken to sales lots where they were sold at even lower prices using what some would call "usurious" chattel mortgage rates and terms. The net effect was greatly depreciated val- ues, which made lenders even more cautious about their lending practices. Without securitisation the real estate mortgage market enjoyed liquidity for a while through sec- ondary mortgage financing markets such as Fannie Mae, Freddy Mac, and the GSEs including Ginny Mae for FHA and VA notes; chattel mortgage lenders relied on private investors and placement of bonds when possible in capital markets. With the high rate of defaults and the eventual demise of so many chattel mortgage originators, in- vestors demanded tighter credit scores for under- writing, shorter terms, and higher interest rates with larger down payments. The FHA Title I re- forms loomed large at first, but eventually that pos- sibility was taken away through the tight fists of GNMA, buy eliminating all but 2 lenders from the market. And, making their financial and reserve requirements to tough as to only generate less than a dozen loans in 2011. Was that the intent of Congress when it adopted the reforms of the program in HERA signed into law by President Bush back in 2008? Yup folks, we are now in our 8th year of the reforms, and the program still isn't having the impact it was in- tended to (presuming it was honestly intended to). Oops, there went the sales of new homes, and sellers had to drop prices low enough to make these new financing terms produce monthly payments which met lowering incomes of families. Who in these market conditions would be fool enough to build a new community? Especially higher quality communities located on more ex- pensive land in more desirable areas, with increased home prices to match newer nicer looking, factory built homes with options and features to virtually match the familiar appearance of site built homes? Seemed like a good idea at the time to some. If the public didn't like the looks and quality of fac- tory built homes which were affordable, wouldn't making them nicer, and more like site built homes with higher roof pitches, more extensive founda- tion systems, and higher quality construction stan- dards, make sense. Sure it would, unless you had to sell them at minimal differences with site built home prices, especially with the higher interest rates, and shorter loan amortization periods. And what happened to all those communities who through their restrictive lease and community guidelines restricted homes which were higher priced through limitations on size, architectural characteristics and accessory structures such as en- closed 2 car garages? Several went from sales of 10 to 12 per month to only 6 per year in some mar- kets. Try as they might, the current residents be- came upset at the prospects of installing a metal on metal "slick-side" single section home next to their prized triple wide, 5 in 12 pitched, architectural shingle, dormer roofed homes. Perhaps it's time for the industry to think about getting back to our roots: building safe, affordable factory built homes which sell at prices which are truly less expensive than site built homes, and compete directly with apartment rents, but which may not be virtual "copies" of site built homes. Why? First of all, it's not possible to build a site built home equivalent at prices which are significantly lower cost than site built, just because it's done in- doors. So called "Modulars" have proved that fact. Yup, it's not just the financing burden, but also our image which is largely to blame. We can build them to be affordable, even with today't tougher standards, and new foundation and installation specifications. But the general public still believes they are: cheaply built, more vulnerable to fires and high winds, depreciate, and are destined for only "gypsies, tramps and thieves", military transients and itinerant farm workers, plus an occasional re- tirement community for age 55+ seniors. Still, with all that, the opportunities are loom- ing, large. A manufactured home, on a leased homesite, in a well managed community is still a viable source of housing for about 5% of all Amer- icans. Not withstanding some older, marginally managed, smaller communities, most community residents are happy with their homes, and enjoy a lower monthly housing expense, minimal mainte- nance, in a safe, functional, housing alternative Should you decide to do so, where are the best places in which to build? One way to answer the question is to look at how many distressed properties are selling in a particu- lar area compared to the number of new homes. This is not because the demographics of distressed property buyers and new home buyers are necessar- ily similar, they aren't, but rather the health of the market that this ratio implies. Distressed sales create havoc with home values, and make it hard for builders to hold the line on prices. So naturally, areas with a relatively small share of distressed closings make for an attractive new home building environment. Housing IntelligencePro at http://www. housingintelligence.com looked at MSAs with at least 500 new home closings in 2011 and compared that volume to the number of dis- tressed property closings in the same period. By a wide margin the leader was the active-adult mecca of The Villages in Florida, with an impressive ratio of 18 \ 21