Volume Buyers

Keeping you informed and updated!

Julian Castro & Doug Ryan

In recent news two fairly exciting things have happened for the manufactured housing industry.  Manufactured housing has begun to escape its dated reputation for being poor in quality, dangerous, and vulnerable to predatory lending practices.  Through the hard work of manufacturers in the development of new production methods, materials, and technology the industry has taken great strides to compare with and now exceed the quality and visual appeal of their site-built counterpart.  At the same time retailers, affordable housing advocates, and consumers have worked to educate politicians, lenders, and other potential home owners of the new realities in manufactured housing.

Recently the U.S. Secretary of Housing and Urban Development, Julian Castro, gave a speech praising the manufactured housing industry not just for offering a more affordable alternative to site-built homes, but for creating safe and energy efficient homes as well. Clearly manufacturers have made enormous strides in the quality of their product if they have gone from being shunned by the general public to being the center of praise and great admiration by a man whose job is to help Americans have access to quality and affordable housing.

In conjunction with Julian Castro, Doug Ryan, a man who has been at the forefront of lending reform with the Federal Housing Finance Agency is trying to make changes that would affect roughly 35% or manufactured housing consumers.  Currently manufactured home buyers who are putting homes on land they own are able to take advantage of conventional mortgage specifications because they are able to borrow money for the homes as real estate while most people who are borrowing to purchase a home that will be in a community or other form of leased land must classify the loan as chattel or personal property.  Doug is proposing to make lending changes that would allow for better lending treatment for leased land buyers by creating incentives for Fannie Mae and Freddie Mac to become involved in leased land lending.

Without getting into too much detail about the extreme financial differences between chattel loans and real estate loans, it is appropriate to state that those difference can be a deciding factor as to whether a person decides to buy or not.  When we see Doug Ryan making strides to increase borrowing opportunities for a group of people that make up 35% of our consumers, it gives all of us a reason to be excited.

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December 17, 2015 Posted by | Financial Information, General Information | , , , , , , , , , , , | Leave a comment

Will there be a rate hike? How will that affect us?

Growth in the housing market is an indication that the future is bright for our industry but as people whose lively hood is consumed by market performance we need to be prepared not for just growth, but any market movements.  In the past two decades, through two major market implosions we’ve seen how a trend in growth can indicate and in fact cause a market downturn.  Growth is great but over heating of any market creates volatility and usually a painful correction.

Currently statistics from the Multi-Indicator Market-Index (MiMi) reveals that the housing market has grown 6% from 2010 and is seeing its best year since 2007.  This growth has been spurred from both sustained low interest rates and employment growth.  This growth in the market is expected to continue through year end but employment growth will not be enough to sustain the market moving into 2016.  For growth to stay steady in 2016, wages will have to increase.  Home appreciation rates have outgrown wage growth and the Federal Reserve is concerned that, similar to our last two housing market crashes, homeowners and potential buyers are experiencing false equity.  One measure creating this concern is that construction and replacement costs have risen 3% over the last year while resale and purchase prices have risen 13%.  This 10% gap is potentially caused by inflated appraisals where homes are being sold for more than they are worth simply because there are enough buyers out there who are willing to pay the price.

Inflated appraisals and false equity in the resale value of an existing home may seem far removed from any concerns that we have in the Modular and HUD home industry, but this problem doesn’t take too long to become relevant to us.  If the market continues to grow at an increasing rate and the Federal Reserve finds that false equity is occurring as a mechanism to keep up with housing demands then the Fed will enact an interest rate hike.  The safest way to keep an overheated housing market in check is not in the costs of the home, but in the costs of borrowing money.  The Federal Reserve understands this, and this is where we will be affected.  We are already dealing with a demographic that has restricted credit options and an interest rate hike would restrict our demographic further.  This rate hike could cause a decrease in sales, which is its intention, and could be harmful if unprepared for.  This is still better than the alternative of an overheated market running out of flame.

To see the graphs better, please click on them

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To demonstrate this I’ve provided two graphs and a couple statistics to illustrate what happens when a housing market’s overheating simply becomes too hot.  In the 90’s the manufactured housing industry was on an incredible rise, sales and prices were steadily increasing and the demand seemed just as steady.  In the mid-late 90’s, specifically 1996 and 1997, because of apparently unending demand home prices rose and in 1997 the average home price was $20,290 more than in 1996.  This is equivalent to an overnight increase of more than $30,000 in today’s dollars.  With a constant interest rate on a 30 year mortgage and adjusted for inflation this price increase would make monthly payments for a 1997 buyer increase by $143.61 over a 1996 buyer.  Home sales in numbers fell 2%, the first decrease in five years, while home sales in dollars rose 54%.  This rapid increase in price to curb demand led to a five year slide in home sales that averaged a 16% loss in sales for five straight years.  This same practice of inflated pricing happened in a more openly fraudulent way in the late 2000’s and as long as people are willing to take major risks to earn money we will always have to watch out for markets crashing.  So, by all means ride the wave, just hold onto your life vest.

November 7, 2015 Posted by | General Information | , , , , , , , , , , , , , | Leave a comment