In the two years since the pandemic, median home prices have jumped 36.5%, according to data from the US Department of Housing and Urban Development and the Federal Reserve Bank of St. Louis. Average 30-year fixed mortgage rates jumped 3.3% to 5.3% during the same time.
This data shows a troubling trend: The American dream of home ownership is becoming more remote than ever.
While there is no single fix, one solution may be overlooked: manufactured housing. These communities offer advantages for buyers and investors.
"From our perspective and based on many of the trends we're seeing, manufactured housing remains one of the last truly affordable housing options in the US," says Peter Szewczyk, Capital One's head of East Coast CRE Originations. "It's not that easy to develop affordable apartments as development costs are now so high that there is an implied floor on rent levels to justify the investment."
Rethinking Affordable Housing in the American Dream
Over the years, development has made manufactured homes more appealing and functional.
"If you're promoting the American dream of home ownership, this is one of the most affordable ways of doing it," adds Todd Elkins, senior vice president of Agency Finance at Capital One.
The model is unusual. Of those living in a manufactured home community, or MHC, about 80% own their units, while the rest rent. But even the owners rent the pads on which the homes sit. The arrangements are stable, with 10% or less average annual turnover, versus 50-60% for apartments, Szewczyk says.
Unit owners are particularly stable because it can cost about $10,000 to move one to a new location, Elkins adds. Homes can also last 40-50 years, and beyond, even in tougher climates. People typically sell their units to another person when they decide to go elsewhere, or property owners can purchase the home and either sell or rent it in-place to a new resident.
"In and around large cities, coastal areas, locations where the population has migrated, and where jobs are in abundance, I think you will see growth," Elkins says, with the caveat that these locations tend to be within about an hour of the homeowners' employment.
The Evolution of the Manufactured Housing Market
Investors and operators are taking an increasing interest in the asset class, and a cap rate compression shows it.
Ten to 15 years ago, investors could buy an MHC for a premium over traditional multifamily, according to Capital One. Since 2020, Capital One's Agency Finance business has closed more than 120 manufactured housing transactions totaling over $1 billion, with borrowing relationships throughout the country.
Now, manufactured housing can be as competitive as multifamily, with some acquisitions sporting sub-3 cap rates. "If you're buying an MHC at a 5% cap, or higher, that is a good deal in this market. That dynamic has changed considerably very quickly," Elkins says.
With all these changes to the US housing market, MHCs are only likely to grow in volume and demand.
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