Mobile Home Park Mastery: Episode 175

The Potential Impact Of What The Economists Are Saying

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Economists are paid to make predictions – and they make a lot of them. Most of them are fairly off base, but when you aggregate them and take the average you start to get a better picture. In this Mobile Home Park Mastery podcast, we’re going to take recent economist surveys regarding the U.S. economy and overlay those on the potential impact to mobile home park investing. Just as it’s “hard to row against the current” it’s important to try and align your mobile home park with the megatrends.

Episode 175: The Potential Impact Of What The Economists Are Saying Transcript

Economists make lots of predictions and rarely are they correct. However, when you take them in the larger macro whole and average them, you can kind of see glimmers of accuracy. But nowhere do you see anyone who takes the economic fortunes of the future and overlay that on top of the Mobile Home Park model. This is Frank Rolfe, from Mobile Home Park Mastery podcast. I was going to go ahead and take the annual Barron's magazine, where they talk about all of the future forecast of where we'll be, this time for the year 2021, and get a rough idea of where we stand today and what the impact will be on mobile home parks. So let's just jump right into it.

Let's first start off with people's ideas on interest rates. So the economists right now are saying the ten-year treasury note will yield, the number one guesstimate was 0.75%. The number two was 1%. The number three guess by economists was 0.5%. So clearly they're all thinking it will be somewhere between 0.5 and 1. And that's great for Mobile Home Park owners, because we love these low, stable interest rates. Those have really been a hallmark of how well our industry has done, and all of real estate for that matter, is the fact that we use leverage. All real estate does. And the lower the interest rate on the money that you borrow, the better your performance on your cash on cash return.

So it sounds like for 2021, we're looking pretty good when it comes to interest rates. And I think they're all pretty correct. Bear in mind, our nation has created so much debt. We are the largest borrower now in the world. We really can't afford to have rates go up really at all. So I think the economists are pretty good on that one.

The next question they had is, when will the GDP go back to being where it was in 2019? It collapsed under COVID. So this one really is a question to the economists of what year does life go back to being normal? What's the guesstimate? Overwhelmingly, 2022. Well, now what happens in 2021? Well, I can tell you we're nowhere near the end of the pandemic and its aftershocks. People are still wearing masks, we're still in lock downs, small businesses are being decimated. And even though I know we've got a shot coming out soon, will people take it? Will it be effective? And then when will people go back to doing what they were doing prior to the pandemic? Going on trips, eating out, in many cases, having a job. So they're probably pretty correct in assuming this next year is going to be just awful. I've been writing articles on that for the last several months. People are losing sight of the fact that the great recession was predicted by economists to begin in 2021. And most of them have held to that prediction.

So what was 2020 then? Well, I guess that was just a prelude. So apparently we haven't actually hit the great recession yet that they're thinking of. And that should be scary to most people. However, it's nevertheless important that we all realize we will get through this. And the economists are saying, "Yeah, you will get back to normal, just not in the year of 2021." In fact, 75% are predicting it won't be in 2021. So we will all have to muddle through.

Now, that's again, not bad for Mobile Home Park owners. We've proven to be the best real estate sector for the pandemic. We have strong demand. We're having strong collection. So we're going to pull through and really what it's doing is it's helping to elevate the esteem of mobile home parks with lenders and investors because many of the other sectors are failing miserably. Some people say that 30% of all hotels right now are facing foreclosure. And we all know that office and retail is being decimated. So I think the economists are pretty accurate on that one.

Now, let's go to the next one. And the next one is, again, a broad brace the economy predict the growth of the US GDP going forward. And what they're predicting is not very good. They're predicting for 2021, when we look down this chart, it's either negative or only slightly positive to zero. So once again, they're predicting the return to strength being in 2022 and not in 2021. So if you had your hopes up that we've been through the worst and we're going to be doing better shortly, again, I don't think that's realistic. Now, perhaps the take away from this is, for those who have Mobile Home Parks, thank heavens we're in the affordable housing business, so we're contrarian and we do better as things contract and get worse. Because it looks like they're going to get worse before they get any better.

Now let's move on to people's ideas on jobs for a moment. So the question is, what industries will be performing best as we go forward? Well, the number one is technology. That's no shock. People love technology right now, whether it's Tesla or Zoom. People see technology as being the solution, not only to the pandemic, but just the change in the way people like to live their lives. So I'd say that's probably pretty accurate. Technology is going to do good.

The next one is healthcare. Well, we've always been huge supporters of markets with heavy healthcare employment. So we agree. I think healthcare is definitely going to be a strong set going forward. So yes, healthcare makes sense. Basically industrial production. Yeah. I see that. Now that it appears it's going to be the Biden presidency and we're talking a lot of rebuilding America's infrastructure and that's one of the key items he mentioned in his campaign, then yeah, you're going to have a lot of manufacturing of those things that create infrastructure. And the good news is for Park owners, that's a big part of our employment. In fact, a whole lot of markets we're in are heavy and manufacturing and a lot of the folks in mobile home parks work in those industries. So I think all of those are pretty good.

Now we look at what are the worst industries according to the economists going forward. And you can guess number one, energy. Energy is ranked by far the worst industry. Why is that? Well it's simply because the price of oil and gases declined a lot during the pandemic. And now if you couple that with the Biden presidency, which at least has talked about the Green New Deal or trying to get away from oil and gas production, well, that's probably not a very good sign either. Now we've long written articles that we did not think it was smart for people to invest in mobile home parks in predominantly oil and gas areas. Because we've seen this cycle before. I was there in the eighties, in the late eighties with the Texas SNL crash, much of it fueled by the collapse of oil and gas prices.

I remember being out in a mobile home park in Midland-Odessa, giant park, didn't even know what a mobile home park was back then. I just happened to be out driving through Midland-Odessa and looking around, I saw this giant mobile home park with an old mobile home parked in it. Drove into the thing. I was out looking around and here you had this mobile home and a few others in this giant mobile home park. And I thought to myself, gosh, if I was in this business, what would I do with this asset? Just lot after lot after lot, hundreds of them sitting completely vacant. Now of course, today I know what the answer would be. You'd be in real trouble. So again, the oil and gas man campion version of mobile home parks probably going to be in despair fairly soon. But I think the economists are correct. I think that's probably going to be the worst industry you can be in going forward.

Next up to bat, financials. Well, why is financials, financial services the worst? Not really sure other than perhaps we're going to be so efficient. I've noticed a lot of banks post-COVID are not going to go back to being what they were like before. They're getting rid of a lot of the employment, a lot of those walk-up windows and things because they found at the end of the movie that a lot of that traffic really wasn't profitable for them. And they save a lot of money by having fewer people. So yes, I would say the outlook there is going to be a little grimmer than perhaps it was before. And then utilities. Well, again, utilities all goes around energy once again. So I guess it's an energy two for one here, as far as economists not being very excited for the future.

Now what about regions? What are the economists seeing as far as regions that they see strong? Well, you're seeing shifts there. You're seeing a lot more focus now from economists on the future of the Southeast. States like Alabama and Georgia have done a tremendous job of reinventing themselves. And a lot of living the lifestyle in those areas is being embraced by millennials who now outnumber the baby boomers. Other areas are looking strong or where baby boomers like to go with 10,000 a day retiring. What's the kind of climate they like? Typically warmer. And they like areas that are typically greener and more fun. So what you're seeing is a reshaping of America. Some people call that... Zillow calls that, I believe, the great reshuffling. It's a changeover of where people want to live. What they want to live in. And what they're finding is most people are wanting to move away from urban markets into suburban. So what you're going to have is, as people move into these suburban and even ex-urban, that's the next layer beyond suburban, you're going to have entire change of how people want to be geographically.

And again, this is good news for Mobile Home Parks, mainly because those are areas we typically serve. We're not, and there have never had that many mobile home parks in urban downtown areas. There's always a few, but the bulk of the product is based on more suburban markets and ex-urban markets and that's where people are flowing. So again, I think this is probably definitely a positive trend for the industry.

So are there any trends out there that we're seeing here that are bad for Mobile Home Park ownership? And the answer is, no, I don't really see it. I don't think so. Unless I'm missing something. We're going to have a lot of challenges in 2021, but I think we're going to find ourselves back to more of a normal world in 2022. We just have to make it through this next year. Again, for those who already own Mobile Home Parks, well, the good news is you own a Mobile Home Park. So you're in pretty good shape. We're contrarian. Our sales get stronger as things get worse. Our collections are solid. You'll probably see the end of the eviction moratoriums shortly. Most of them expire at the end of December. Even if they pass the stimulus, you're talking about them only extending to the end of January. So that's a positive.

And if you don't own a park, might be a good time to be looking into that, because the way things are shaping up based on the economists forecast, it looks like it will be a smart thing to be in the affordable housing business, to be in a industry that serves essential jobs, particularly at this one time in American history.

This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.