Mobile Home Park Mastery: Episode 271

The Impact of Higher 30-Year Single-Family Mortgage Rates

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Mortgage rates are now at 7.25% which is about double from where things stood in January. What impact does this shocking news story have on the mobile home park industry? In this Mobile Home Park Mastery Podcast we’re going to discuss the many byproducts of higher home mortgage rates – most of which are positive by nature and reflective of U.S. megatrends.

Episode 271: The Impact of Higher 30-Year Single-Family Mortgage Rates Transcript

The 30-year fixed rate mortgage in the United States is now at about 7.25%. That's nearly double what it was back in January. And that means if you're buying a house today at the same price you bought it back in January, your payment has nearly gone up twice as much. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're gonna talk about the impact of these higher single family mortgage rates on the mobile home park business. So let's first start off with the conversation of the contrast between single family mortgages and mobile home mortgages. Many mobile home park operators, to fill vacant lots, bring homes in and then they're typically sold to customers who finance them through programs such as the one offered by 21st Mortgage called the Cash Program. There's also Performance Equity Partners, there's Triad, there's other programs.

And the interest rate on those programs is typically around 10%. Now, for the longest time the industry was criticized as having the usurious interest rates, which I always thought was ridiculous, simply because although a single family mortgage rate back then was maybe 4%, a credit card interest rate is about 30%. And a credit card, of course, charges higher than the single family home because it's considered unsecured debt, but yet the mobile home is not a whole lot better than that unsecured loan. It's not a stick built dwelling, doesn't have a little plot of land. It's basically personal property, and as a result the interest rates are at 10% to me were always very fair. I don't think anyone, any sane person, anyone who actually had any background in finance would, in any way, question the validity of a roughly 10% interest rate.

But nevertheless the media just loved that news story. Over and over again they wrote topics for years on how unfair it was that mobile home people were gouging customers with those crazy rates that were more than two times their rates. Well guess what? That's competitive advantage is now gone for single family. All those articles no longer are really accurate because at 7 1/4 versus 10% there really isn't that big a gap. In fact it's amazing that most of the mobile home financing companies have not raised their rates more aggressively, but they seem to be happy with the arrangement. And those programs, the mobile home park owner effectively backstops potential losses to the mortgage holder, so it's better safer loan probably than the single family is at this point. But that contrast between the two is no longer there so you can't really beat up mobile home financers anymore claiming that the rates are ridiculous. So that's one benefit of the mortgage rates going up is it got rid of that false media news story. Second, mobile home values are going up just because single family rates have gotten so high.

The demand for affordable housing in the US is just astounding. And you probably saw that recently it was announced that mobile home values have gone up pretty much in tandem with single family. So once again all that criticism we received for so many years where people said, "Ah well you're denying people the ability to gain financial wealth by mobile homes that don't increase in value." Well it's now been proven wrong. You can look at the articles mobile homes basically have gone up just about as much as single family with a lot of that increase having been pushed recently because with single family now completely out of the reach on a monthly payment for most people that makes them need something that's still detached with a yard and the mobile homes fit that bill. So that's also great. Also the impact you're gonna see in the industry is similar to what we saw during the Great Recession for those who can think back 14 years ago.

What happened? You had the 2007-2008 Great Recession where single family industry collapsed and what was the net effect? Well the net effect was that we went from a nation of homeowners to a nation of renters and apartment rents skyrocketed as did single family rentals and that set in motion mobile home lot rents going up significantly. Now this time is different. This run-up in mortgage rates is not something you saw in 2007-2008 but the net effect, of course, is the same. You're gonna see a complete tanking of the single family home industry. You're already seeing that now, you're seeing that homes just are not selling, developers are pulling the plug on new subdivisions they were building. But the net effect of all that is if the housing stock is not around for people to buy, well they're gonna rent and as the demand for renting goes up, then the rising ocean lifts all boats.

Mobile home lot rents are no different. In fact, many people, if you went to mobile home park conventions immediately following the Great Recession, they would tell you that The Great Recession was a huge boon to the industry. They had not seen so much demand or the ability to push rents ever in the past as they had during that one short period. So effectively the single family home mortgage increases and the resulting collapse in the single family market will just usher in more ability to push rents on the part of the park owners. Also you're gonna see a whole lot less movement in the US from people who are basically trapped in houses, and that's going to have kind of a negative impact probably on the senior side of the mobile home park industry. Because if mortgage rates are doubled then that means the values of homes, I don't know if you can say they'd be halved, maybe ultimately, but with those big reductions and that tougher market to sell homes, you're probably gonna see fewer seniors, you most certainly would have to see fewer seniors who sell their home to downsize and then buy a mobile home for cash, as they often do, and live out the remainder of their life in the mobile home park.

So that's one negative impact of the higher mortgage rates is you just are going to have less fluidity on the part of seniors. Now a big portion of the industry, the bulk of it is probably what's called the all-age community, and in those communities you can have people of all ages living in there but, of course, there are also the senior communities which only allow people of a certain age or older. On the all-age community side, if the seniors stop moving in that's okay, the incredibly high demand for affordable housing will fill everything up that you humanly have available with a family, so there's no problem. But I'm talking just on the strictly senior parks.

One concern I have with the higher mortgage rates is you just won't see quite as much movement. So if you're relying on seniors to fill all your vacant homes and vacant lots, that could create a problem for those who are in the senior market. Also you're gonna find the increase in the mortgage rates is going to cause much more government scrutiny of the housing industry in general. I would not be shocked to see many discussions on Capitol Hill of the evil housing market which is ruining lives by charging these high interest rates, even though the government caused it by the actions of Jerome Powell and the administration's own failures in decision-making. So it's not really a fair criticism at all but the government loves to harness those moments to cause all kinds of political showmanship. Don't forget that the SAFE Act and Dodd-Frank were a direct result of the 2007-2008 housing meltdown.

So what better opportunity to bring forth some other idiotic legislation and public shaming to the industry? And since mobile home parks are part of the general housing market, although a very small, only 8% of people live in mobile homes in the US, will no doubt be sucked into those hearings and we will be flogged and publicly shamed by every media outlet that will take the story. So I'm certain that will be happening. But the one, I guess, bright spot of these higher mortgage rates for mobile home park owners is simply they will lead to the ultimate crash of the US economy, because unlike other countries, single family homes are a huge part of the American economic complex. I believe the stat is roughly around 20% of our gross national product is from the home construction industry.

The building of the homes, the selling of the homes. And the problem is when you have that high a concentration in one sector and that sector gets decimated, it definitely is going to lead to some kind of dislocation of the economic drivers that keep the economy propelled forward. And so as you start seeing things come apart, as the wheels start falling off the car, you're going to hit that fabled moment of the next great recession, which 100% of all US economists predict will fall in 2023. And why this is an important item is that the great recession is gonna be a great moment for the mobile home park industry for two reasons. Number one it will trigger interest rates to decline. In fact Jerome Powell has said as much. He's gonna pivot on the rates as soon as the economy he in his opinion starts to enter into a recessionary format. So that is the first big item because all park owners would like to see interest rates as low as they can humanly go.

It makes financing easier and it also obviously makes the values go up. But also as the economy crashes, unlike other sectors of America, we are a contrarian business. And so our demand goes up in proportion to the economy's decline. So having a recession right now would be a very healthy and positive factor for the mobile home park business simply because that has always been our true nature, we're contrarians. So as times get tough, our business gets better. It's just like a Dollar Store. The Dollar Store's best sales come when things are tough. Right now Dollar Stores are doing great because people are feeling pinched at the gas pump and at the grocery store everywhere they go. Their money does not go as far, and many people who have never been in a Dollar Store are now shopping in Dollar Stores. There's been articles written on the fact that people coming from all forms of demographics in America are now Dollar Store customers, who you would have never thought would have been in the past.

So again, when we have, as a result of these higher mortgage rates and the collapse of the housing industry in general and the great recession which is part of a byproduct of that, you'll then ultimately see some of the strongest demand for mobile home parks ever. You'll see lower interest rates, and, of course, you'll see higher lot rents because of all that demand. So the bottom line is, yes, it's shocking it's amazing that 30-year mortgages are now at 7.25% which is double what they started off the year, but at the same time it's not altogether bad for mobile home park owners. Once again mobile home park owners seem to luck out and be on the right side of virtually every mega trend in the US. This is Frank Rolfe with the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.