The Hidden High Costs of Mobile Homes

Since their creation more than half-century ago, nearly everything about manufactured housing has improved – except the way they are sold and financed. High-interest loans, shorter loan terms and some sales tactics turn what could be a good deal into an expensive proposition. And most of the people who own them are rural. 

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While the health of the U.S. housing market is still in flux, one particular segment appears to be improving — at least on the surface. For the third consecutive year, the number of new manufactured homes sold in the United States grew. According to figures from the U.S. Census Bureau, the number of new manufactured homes “placed” (an equivalent to new sales) in 2014 will increase to an estimated[i] 58,000 homes — up from 56,300 in 2013. 

The tepid rebound comes after a long and sustained downturn for the manufactured housing industry. Distress in the manufactured housing market actually predated the recent national housing crisis. After experiencing dramatic growth throughout much of the 1990s, sales and shipments of manufactured housing spiraled downward into a sustained slump for more than a decade. An overextension of credit and risky financing backfired after record-high foreclosure rates produced a glut of manufactured units, depressing the market. In the latter 2000s, placements of new manufactured housing units declined to their lowest levels in decades, and many large manufacturers and retailers exited the market or declared bankruptcy.[ii]

Manufactured housing sales (green line) started dropping before the drop in conventional housing sales (blue line). (The sales figures are charted on different scales to make them easier to compare.)

Manufactured homes – commonly referred to as mobile homes or trailers, are an often overlooked and maligned component of our nation’s housing stock.  But manufactured homes are an important source of housing for millions of Americans, especially those with low incomes and in rural areas. There are approximately 6.8 million occupied manufactured homes in the U.S., comprising about 6 percent of the nation’s housing stock. More than half of all manufactured homes are located in rural areas around the country. Also, roughly half of manufactured homes are located in Southeastern states.

An Affordable (Yet High Cost) Housing Option

Affordability and convenience make manufactured homes a popular housing option. The average sales price of a new manufactured home in 2013 was $64,000 (excluding land costs) compared to an average of $269,000 for a newly constructed single family home.[iii] [iv] While the purchase price of manufactured homes can be relatively affordable, financing them is not. The majority of manufactured homes are still financed with personal property, or “chattel,” loans.[v] With shorter terms and higher interest rates, personal property loans are generally less beneficial for the consumer than conventional mortgage financing. Roughly 60 percent of manufactured home loans in 2013 were classified as “high cost” (having a substantially high interest rate) which is more than eight times the level of high cost lending for newly constructed single family structures.[vi]  Manufactured homes are typically sold at retail sales centers where salespersons or “dealers” receive commissions, often exacerbating these finance issues. In some cases, dealers resort to high-pressure sales tactics, trapping consumers into unaffordable loans.[vii]

The percentage of manufactured houses financed with a high-interest loan is high compared to the percentage of single-family homes financed with high-interest loans.  

Trends in manufactured home sales can nominally be linked to the recent economy as well as their treatment in the larger mortgage finance system. No meaningful secondary market, similar to that used to finance most single family homes, is currently available for factory-built housing. But much of the isolation and disparate treatment for manufactured homes in the finance markets can also be attributed to systemic industry practices and systems. Modern manufactured homes have evolved from automobiles and recreational travel trailers into high quality homes. However, the basic delivery system of how a manufactured home is sold, financed, appraised, and warrantied, has really not progressed much since its nascent beginnings more than a half-century ago. The typical purchase of a manufactured home is more akin to a car-dealership approach than a homebuyer’s market. Consumers of manufactured homes are penalized by this incongruous and asymmetric system with higher interest rates, shorter terms, and fewer protections than if they had a standard home mortgage.

Manufactured home sales have been on an upswing lately. But what would be the potential for this type of housing if consumers had more access to quality mortgage lending, instead of a reliance on an outdated and outmoded finance system?

Lance George is the Director of Research and Information at the Housing Assistance Council (HAC) in Washington DC.

The darker colors represent counties where a greater percentage of manufactured housing was financed with high-interest loans.(Click the map for an interactive version.)

 


[i]Housing Assistance Council projection using U.S. Census Bureau Manufactured Homes Survey data.

[ii] U.S. Census Bureau, U.S. Department of Commerce. “Placements of New Manufactured Homes by Region and Size of Home: 1980-2013.” Washington, DC: U.S. Census Bureau, n.d. http://www.census.gov/construction/mhs/placed.html

[iii] U.S. Census Bureau, U.S. Department of Commerce. Manufactured Homes Survey. http://www.census.gov/construction/mhs/pdf/mhstabavgsls.pdf

[iv] U.S. Census Bureau, U.S. Department of Commerce. Characteristics of New Housing. http://www.census.gov/construction/chars/pdf/soldmedavgprice.pdf

[v] Consumer Financial Protection Bureau. Manufactured Housing Consumer-Finance in the United States. Washington DC. September 2014. http://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf

[vi] Housing Assistance Council Tabulations of 2013 Home Mortgage Disclosure Act Data.

[vii] Kathy Mitchell, et al. In Over Our Heads: Predatory Lending and Fraud in Manufactured Housing. Consumers Union Southwest Regional Office Public Policy Series, Vol. 5, No. 1. Austin, TX: February 2002. http://www.consumersunion.org/pdf/mh/over/report.pdf

 

 

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