Mobile home manufacturing has cycled between about 60,000 and 400,000 units a year and one group that could care less are mobile home park owners. Why is there such a disconnect between how many mobile homes are built each year in the nation’s factories and how much money mobile home park owners make? In this Mobile Home Park Mastery podcast we’re going to explore why manufacturing and park ownership have no meaningful relationship.
Episode 310: Why Park Owners Don’t Care About Home Manufacturing Data Transcript
If you got in the mobile home park business around 1998 and stayed in it for only four years, you would've seen one of the largest declines in mobile home manufacturing in US history from a roughly 400,000 units manufactured back in the late '90s, dropping all the way to roughly 60,000 in the early 2000s. This is Frank Rolfe, the Mobile Home Park Mastery podcast. We're talking about the simple fact that mobile home manufacturing which goes in cycles from high numbers to low numbers, it doesn't matter what happens, mobile home park owners don't really care. And the key question I think most people would ask is, how can you have an industry where manufacturing of the raw material, of the mobile home has no bearing on the future of mobile home park owners? Well, there's some really good reasons for that. The first one is that by far, the majority of mobile homes don't go in mobile home parks.
Remember that roughly 8% of the US population lives in a mobile home, but most of those people live in mobile homes on their own land. You drive by them all the time. You go by a farm or a rural area, and you'll see mobile home after mobile home sitting right along the highway on their own land. So the stat is roughly that only 35% of mobile homes manufactured in the US ever end up in mobile home parks. So a whole lot, nearly two thirds of all the data of all the homes manufactured, it doesn't even relate to the mobile home park business. The next item is that mobile home parks have a very steady customer base. The homes never leave. The customers may, they have roughly a 14 year occupancy on average, but the homes are there pretty much forever. And that's why you go in a lot of mobile home parks, and you see homes from the 1960s and the '70s and the '80s, and those are not the original home owners in those homes today.
They may have cycled one or two or three times even, but the homes never leave. So as a result, when your park is full, you don't have to really bring any more homes in unless a home was to burn down or some other natural disaster like that. So mobile home park owners are really not that obsessed with the availability of new homes. Now, if you have vacant lots, you are because you may want to bring new homes in to fill your vacant lots. But if you don't have many vacant lots, then mobile home manufacturing just doesn't even appear on your radar screen of concerns.
Also, remember that most parks can only sell used homes. And as a result, those park owners don't even use new homes when new homes are available. So if you have a mobile home park in an area where the customers are just not wealthy enough to qualify for the mortgage for a new home, so then you simply only buy used homes, either repoed homes or off Facebook or Craigslist, then you could care less what's going on in the manufacturing sector at all. But why is the number right now for manufacturing, why is it on the decline? In fact, some of the factories are reporting 15 to 20% drops in their output, and of course, that's because they're not selling enough homes. So why? Why suddenly are home sales slightly declining? Well, the first big reason is that new home prices have just gotten way too high.
During COVID, most park owners who had bought new homes suddenly got notification that the prices on those new homes were going to rise substantially. Even though they had signed agreements saying that the home would be one price, the manufacturers balked and said, well, I know we promised you that, but you know, we just can't deliver it because of all this supply chain interruption stuff. That was the big catchphrase, obviously during COVID, was supply chain interruption. And we all know years later, that probably wasn't really the case. It was just an opportunity to try and gouge prices. But nevertheless, it was a weird period in American history and everyone used COVID as the excuse for virtually anything.
And what it did was it drove new home prices from X to 2X. From $40,000 delivered up to 80,000 in many markets. And what happened is when the homes reached that new level, many people who could formerly afford to buy a mobile home at 40,000 simply could not at 80,000. You were talking payments that were roughly double. So if you have a limited income, you have your job, you have to subtract other debt obligations like car payments and credit cards. They just could no longer qualify to buy a mobile home. So as a result, park owners who were formerly buying new homes to fill vacant lots suddenly had to retreat or lower their orders or lower the rate that they could bring those homes in.
Also, mobile home park owners are a very large part of the home manufacturing business as far as single wides go. And since their customers could not qualify for those single wides at the new high prices, the orders start to diminish. So as a result, the industry is learning that mobile home park owners are a pretty big customer when you consolidate them all together. Now again, two thirds of the homes don't go into parks. Two thirds of the homes go out on raw land. But of that final third, mobile home park owners have become a fairly large collective block of all mobile home purchases. Also, and this is the big item, is that mobile home parks are all just getting full.
In our own portfolio, we are achieving 100% occupancy in a whole lot of properties. And the problem is once you hit that number, you don't ever need again to ever even think about buying a mobile home. So unlike a restaurant where you're constantly having to buy new food, new cans of Cokes, new meat deliveries to meet the constant demands of your customers, in our case, when we get full we're done worrying about the homes. Because remember, the mobile home parks are simply parking lots. That's what the park and mobile home park represents. We're a parking lot. So we don't really care where the cars came from to fill our spaces. They're just there and they pay us the fee to park. So once we're full, once we have cars in all those lots, we don't care a darn thing about car or car manufacturing stats. It doesn't matter whatsoever. And there's a lot of these old mom-and-pop mobile parks have been purchased by larger operators, in some cases private equity groups, but in most cases not. Just more professional investors to where mom-and-pop were. And they start filling up these vacant lots based on the demand, based on what they can find as far as used and new homes. Once they achieve 100% occupancy, they're done. They're not going to buy any more homes. So in some ways, you're also seeing that ending to the movie, because there's a lot more mobile home parks today that are full than ever before.
In fact, a simple drive through most of the mobile home parks in your market, you'll definitely see much greater occupancy. As people now buy these old parks to bring them back to life, they fix them up, they take those vacant lots, they start bringing homes in and they get them sold. Now, there's been some great developments that have happened over the decades regarding mobile home park owners and mobile home manufacturing. Most of those initiatives come in from Warren Buffet's Clayton Homes and 21st Mortgage, one of their mortgage subsidiaries. They've been a great partner, very proactively working to help mobile home park fill those vacant lots. So as a result, you can floor plan vacant lots with new homes at virtually zero out-of-pocket cost. And that's great. And that has helped park owners to fill those many vacant lots in pretty rapid fashion. It's also true the mobile home park owners today can buy homes, factory direct, cutting out the middle man, cutting out the giant markup the dealers charge. So those two factors have really helped accelerate mobile home occupancy gains. But the problem is at some point from a manufacturing perspective, all of those little slots become full. And when that happens, mobile home park owners don't much care.
The industry really is in two pieces. If you go to any industry conventions, whether it be state or national, you have on one side of the room, the manufacturers and the dealers and their salesmen and vendors who sell parts to those manufacturers such as frames and lumber and carpet. And then the other side of the room you have the park owners. And even though we're in the same business, theoretically, we're all in the same industry. The problem is we have very different goals and aspirations and outcomes. So as you see mobile home manufacturing dip at the moment, always remember it will go up again in the future. It always seems to run in cycles. But regardless of the cycle, it does not have much impact on mobile home park owners. This is Frank Rolfe from Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.