Many economists predict the next U.S. recession to begin in 2021. Even if that date is incorrect, it’s a certainty that there will be another recession in the near future. It’s been 12 years since the Great Recession and economic cycles are a part of American (and world) history. So what will be the impact of the next recession on the mobile home park industry?
Increased demand for affordable housing
One of the first byproducts of the 2007 Great Recession was an increase in demand for affordable housing. When the economy tanks, people need lower cost places to live – it only makes sense. Since apartments and single-family homes have virtually no affordable options, all that demand fell onto the mobile home park sector. So this effect of a recession is positive for the industry.
Difficulty in getting new loans until market stabilizes
This is a bad byproduct. Past recessions have proven that banks hate times of economic uncertainty, as they have troubled loans, troubled board members, and no confidence in the direction of interest rates. It should be noted that CMBS conduit lending virtually disappeared following 2007 and didn’t come back until around 2010. While we don’t see interest rates rising (as discussed below) we do think that getting loans at the front end of the recession is a challenge.
Lower interest rates thanks to quantitative easing
So then here’s a positive new story that is associated with lending. The 2007 Great Recession led to a powerful force called “quantitative easing”. This is the main weapon the Federal Reserve can yield to try and prop things up. Following 2007 U.S. interest rates fell to the lowest amounts in national history. Using this as a template, a recession should yield the same attack by the Fed and the same result. How low will rates go? Just look at the last cycle. We were doing some bank deals at 3.5% following the recession, with rates rising to around 5.5% at the peak (they have already started to come down in anticipation of the next recession). And that’s great news if you’re borrowing money.
Reduced buying competition
If the stigma of “trailer parks” does not turn off enough buyers, what about when those with stable jobs and investments suddenly feel poorer? The answer, of course, is that many potential buyers of mobile home parks put their plans on hold. This results in less competition to buy properties and effectively lower prices. If you looking to buy a park, this is a good byproduct. If you’re looking to sell, not so good.
More parks for sale
Many moms and pops are distressed by recessions and tend to put their parks on the market in bad times as they just want to sell and retire – they often become overwhelmed with bad news and a depressing narrative. A huge number of parks went on the market after 2007 due to these forces. In addition, the lack of easy financing can lead to an increase in REO properties. These are good attributes if you’re buying.
Fear not the next U.S. recession. That’s not the kryptonite to the mobile home park industry. It’s mass prosperity that caused the sector to plunge into bleak times in the 1970s and onward.