Are You Ready For The "Silver Tsunami"?

“Baby Boomers” are the generational term for those born between 1946 and 1964 – one of the largest population segments in the U.S. The impact of the Baby Boomers has been felt throughout the American economy for decades, propelling any item that was in demand to this group to record-setting levels of sales and usage. And the aging of the Baby Boomers is about to result in what is now called the “Silver Tsunami” in single-family housing. 

What is the “Silver Tsunami”?

The “Silver Tsunami” describes the simple fact that an estimated 20+ million single-family homes will be dumped on the market over the next decade as the Baby Boomers downsize or simply settle their estates. This will be the biggest stress test on single-family homes in U.S. history. How will it fare? Nobody knows, but it’s a topic that needs to be discussed.

How it will impact single-family home prices

Dumping 20+ million homes on the market in one decade is obviously going to have a disastrous impact on home values in a scale never seen before. That’s ___ times as many homes as come on the market normally. And, as we all know, the rule of supply and demand would suggest that when you raise the supply massively you have a huge pricing decline. It’s not a question of whether or not home prices will decline, but rather how much they will go down.

The bigger implications on the U.S. economy at large

America has a huge vested interest in the housing market, from investment values (it’s the largest single investment of all U.S. households) to the construction industry (it’s the largest source of construction spending in the U.S.) to the financing market (home mortgage and refinance is a huge industry). And that does not even include the impact to property tax for municipalities if prices plunge. Basically, it’s a much bigger deal than the 2007 collapse potentially and may well lead to the same type of economic issues.

How this will affect the mobile home park industry

The mobile home park industry is somewhat insulated from the “Silver Tsunami” as it does not have any physical involvement with stick-built housing. However, there are various aspects to this coming event that will have an impact on the mobile home park industry:

  • Impact on interest rates. If the 2007 Great Recession resulted in the lowest interest rates in U.S. history, then the coming “Silver Tsunami” should have the same net effect. Low interest rates are good for the mobile home park industry as it lowers loan costs and increases park values.
  • Banking instability. It is standard practice for lenders to pull in their horns in recessions, which can make getting new loans difficult. If you use the 2007 Great Recession as a template, then the impact of banking instability will hit all lenders, including CMBS sources. The impact on Fannie Mae and Freddie Mac “Agency” lenders is not known, as this type of lending for parks was not prevalent in 2007 yet has grown to the largest source (in dollars) of mobile home park loans today.
  • Downsizing of Baby Boomers. Clearly, the mobile home park industry is a great source of the replacement housing for these 20+ million homeowners that will be selling and reducing their monthly living expense with a smaller home, which may include both mobile homes and RVs which also end up in mobile home parks.
  • Elevation in quality of mobile homes desired by the Baby Boomers. Those who have owned mobile home parks in Florida and California – long bastions of retirement housing – know that customers demand much more in their mobile home selection than that of younger buyers. This will result in park owners having to buy more expensive units to fill vacant lots in their parks if the end user are these Baby Boomers.
  • Improvement in the stigma against mobile home parks and their residents. The bulk of the older population in mobile home parks are the Greatest Generation and Silent Generation folks, which had a very favorable impression of the mobile home park product thanks to its high level of popularity in the U.S. in the 1950s and 1960s (even Elvis lived in a mobile home park in two different films). But the Baby Boomers will have to overcome some degree of stigma against “trailer park” perceptions and will drag with them the rest of the American public that will be related to these individuals and learn the truth about the industry through immersion – and learn that it’s absolutely nothing like the media has portrayed it for the last several decades.
  • Greater interest in mobile home parks as an alternative to the collapse of single-family investing. A huge number of American investors are engaged in speculating on single-family homes, through buying and selling them or engaging in them as rental properties with the assumption that they will rise in value. A decline in home prices will destroy both of these business models, which will force those investors to look for other avenues for financial gain, and that will move many into mobile home parks.
  • Destruction of the media narrative that mobile homes are a bad investment because they don’t rise in value. In the U.S. cage fight between capitalism and socialism, the media agenda has been to criticize the mobile home industry. Their argument is that mobile homes don’t appreciate in value like stick-built homes and, therefore, are inferior and a bad investment for customers. This, or course, will magically disappear as a contention when stick-built home prices collapse and it’s suddenly discovered that stick-built homes are actually the bad investment.

Meanwhile, mobile homes will continue to offer real-money (not speculative) returns to customers in the form of saving them around $1,000 per month over apartments and stick-built dwellings.

Conclusion

The “Silver Tsunami” will be a crushing blow to the stick-built housing market as well as the U.S. economy in general. It may well be the trigger to the next Great Recession. Mobile home parks will fare well in this dislocation, in ways that are bigger than just immediate dollars and cents.

Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time. He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with around 20,000 lots spread out over 25 states. Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.