Mobile Home Park Mastery: Episode 126

Beware The Silver Tsunami In Housing

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Between now and 2037 roughly a third of all single-family homes in the U.S. will come on the market – over 20 million dwellings. This is twice the amount of supply during normal years, and will result in huge changes in population centers, home prices and financial markets. In this week’s Mobile Home Park Mastery podcast we’re going to explore what the Silver Tsunami is exactly, as well as the impact on markets and mobile home parks going forward. As you’ll see, a megatrend of this size will have certain casualties and you want to make sure that you are on the right side of this potential calamity.

Episode 126: Beware The Silver Tsunami In Housing Transcript

Beware of the Silver Tsunami. It's going to be a bigger, more catastrophic event than any hurricane America has ever seen. It's going to be effectively a housing apocalypse. On this edition of the Mobile Home Park Mastery Podcast, we're going to talk about the Silver Tsunami, what it is and how to prepare for it if you're a Mobile Home Park owner, or buyer. First off, what is the Silver Tsunami? Well, that's simple. Basically those who are baby boomers, those born between 1946 and 1964, of which I'm a member. Well, we're all aging, and at some point in time, as you age, you come to the end of the line. You either downsize your home or you simply die and it goes to sale to your heirs, or through an auction or whatever the case may be. And right now the way demographics are going for baby boomers, the Silver Tsunami is basically beginning.

What it means is you're going to have roughly a third, a little over 20 million homes dumped on the market over the next 10 to 15 years. Now to put that in perspective, that means that one in every three homes in America is going to turn over during that period, and that's going to have some unbelievably dramatic effects on everything as we know it today. Home values, entire markets may become endangered. How does it work exactly? Well, we know right now where the baby boomers live. That's tracked. We know where that is. The US census can tell us that. You can look up on and see the aging of the demographics, of the different profiles of who lives in your town. But the first net effect you've got based on what they think the Silver Tsunami is going to cause is potentially migration away from some areas that have been very strong for retirees or the baby boomer generation, but the younger people may not share.

In fact, there's a map that shows where the risk is the greatest, and I'll just read off to you the first four markets. I'm sure you can already guess them. Tampa, St. Petersburg, Florida, Tucson, Arizona, Miami, Florida, Orlando, Florida. Get the point? Basically areas where baby boomers currently congregate to retire. Those are the areas which logically will have the greatest number of homes that will churn. Palm Springs, California is one example. We'll have 41% of its entire housing stock churn between now and mid 2035. What does it mean? Well, the first thing you need to know is you need to be careful around those markets. If you're looking to buy in a Mobile Home Park in an area that is overly weighted in baby boomers, be careful because if younger buyers don't want to step in and live in those markets, you may see mass migrations of population out of those markets simply based on demand.

Nobody wants to move back in. Now, I myself know people who have dabbled in moving to Florida and other hot retirement areas only to become disheartened and move back. I don't hear much about any younger people, very few millennials that are certainly breaking down the doors saying, "Oh my gosh, I want to live in Tampa." You may see massive migration shifts in America, areas that were once beloved suddenly become cold. Just be very, very careful now. If you want to get a map on this, if you'll just go online and you can Google up "Silver Tsunami of housing", you'll find quite a few bit of charts and graphs on the topic and you can start getting an idea on the markets. You can guess what the markets are because it's those heavy retirement areas. Now that's not to say everything else is okay.

If you look down the list of markets and the potential exposure, one that pops up way up the thing is Knoxville, Tennessee. Knoxville, Tennessee has 30.8% of all housing churning by the year 2037. Why is that? Well, Knoxville has always been very heavy in the military. A lot of, I guess retired military people hung around Knoxville. It's not just Florida, it's not just California, it's not just Arizona. However, those areas definitely will be the hardest hit. Number two, you need to be very careful around senior parks. Not just areas that cater to seniors, but Mobile Home Parks and all areas that are senior oriented, because we just don't know if today's young people want to live in Mobile Home Parks in retirement. A lot of people who live in Mobile Home Parks today, who are baby boomers, who are familiar with the product line from perhaps a career in the military.

However, young people don't really have that same background. They don't really know the asset that well and they may just refuse to live in smaller spaces. I know we see a lot of HGTV about tiny homes, but I'm not really sure that millennials all share that desire to live in an old mobile home. Let's be honest, in a lot of those Florida and California parks, those are not modern 14, 16 and 18 wide mobile homes. Those things are eight and 10 and 12 wides. Very, very tiny. I don't know if the average millennial wants to live in a bedroom that will only hold a twin size bed, just not sure of that. So be very careful on your senior parks. Now senior parks have a problem. They have a senior designation, and with that designation it means that you have to be 55 and over to basically live there.

So even if the demand is for young people to live in those parks, they can't. They're restricted. It's the only time that [HUD 00:05:40] Allows you to discriminate. Now there are other parks out there which may have a lot of seniors, but they're not senior designated properties. Those can shift over time. There's no restriction on young people moving in, so you could have a Mobile Home Park that's 80% senior and it could shift 10 years later, only 20% senior, and that's okay because there's no restriction. I'm talking here about those parks, which through HUD, are mandated as senior-only only parks. Again, you find these very, very heavily in Florida, California and Arizona, which makes it double as dangerous because not only will people be moving out perhaps in large quantities, but you can't even house any young people if you could find any, because your designation would allow us. Also be very, very careful around senior parks.

In fact, I've been writing articles on that now I think for about five or 10 years, because I knew this moment would come at some point and I've always been concerned about young people agreeably wanting to retire into Mobile Home Parks. Another thing you need to do, go long on your debt. Here's what's going to happen. When that Silver Tsunami hits, you're going to have all these homes come on the market, not enough buyers to possibly support that number of homes on the market and consequently prices will fall. In some markets prices will collapse. As those prices collapse, lenders will take enormous losses because most Americans have been using their single family home as a piggy bank for far too long now. Financing it and refinancing it. So what'll happen is instead of being a store of wealth, it'll be a store of debt.

And when those prices go down, and those homes all result in losses, there will be some kind of Tsunami in the banking industry from people who are terrified overnight about real estate lending. Now, even though it's single family only, their terror will filter into all forms of real estate as people suddenly don't know what to do. Many banks become extremely strained on making loans. What does it mean? It means go long on your debt. If you have a loan coming up on a Mobile Home Park you're buying, try and go 10 years, try and go 12 years if you can. Agency debt allows you to go up to 12 years in length. Try to stay away from a short term debt because you need time to react. If you put a three year loan on a Mobile Home Park, and assuming you need to reify that at least a year ahead of the end, that only gives you two years.

What if within the next two years there is some kind of market correction on the lending? At least if you go longer term out, the early form of Silver Tsunami will already have taken root, and lenders will have readjusted. They aren't going to stop making all loans, but there may be periods where with instability, they don't make loans. You don't want to be trapped during those periods. Be very, very careful if you can on your debt length. Try and go as far out as you humanly can because the further out you go, the greater security you get. Now, if you sense it's time to do something five, seven years out, you can still refinance a longterm debt. You can still do it. Now, if it's conduit debt, you'd have to pay a defeasance penalty. But still, you want to manage your debt effectively through the Silver Tsunami because it's going to be very, very choppy waters on debt.

In fact, I would say that for most park owners, other than the senior parks or the family parks, the greatest exposure risk will be on the debt itself. But at the same time, despite all these many consequences, I think it's still a very good time to buy Mobile Home Parks. Why is that? Well, it's a contrarian bet on the whole Silver Tsunami occurrence. Don't forget that part of the Silver Tsunami, a big portion is downsizing into more affordable quarters, and of course Mobile Home Parks are the only thing out there that gives you a detached dwelling at a much lower price. We're already seeing that in a lot of our Mobile Home Parks. Take our park up in Traverse City, Michigan as an example. We've been filling that park at a very rapid clip because a lot of people up in that part of America want to retire to Traverse City. And why not?

It's beautiful. It has lots of things to do there, both in summer and in winter. You can buy a mobile home, and in our Mobile Home Park up in Traverse City for about 40 or $50,000, and if you sell your house for $250,000 elsewhere in Michigan, you can buy a home in Travers, put 200,000 in the bank and have an unbelievably high quality of life. Mobile Home Parks are very much a part of the Silver Tsunami. But on the good side, on the receiving end, because we can take in that demand that people are looking for as far as downsizing. So that's still good, and don't forget you're always going to have this entire demand for affordable housing throughout the housing cycle. Doesn't matter if houses that were valued at half a million fall to 250, homes that were valued at a million fall to 500. Our customers are not even in that ballgame.

They're out there looking for affordable housing from day one. They are not going to be restricted or impacted by the Silver Tsunami. Despite the Silver Tsunami and its impacts on geography, its impact on senior parks and its impact on lending, we still think that Mobile Home Parks are a great investment and a great bet going into the Silver Tsunami. That being said, learn about it, study it, be aware of it. It's going to be a groundbreaking mega trend. Most people are very unfamiliar with the Silver Tsunami in housing, but it's coming soon. And if you're smart, like any other natural weather event, like a hurricane, you always want to plan ahead and play it smart. This is Frank Rolfe, from Mobile Home Park Mastery Podcast series. Hope you enjoyed this. Talk to you again soon.