Affordable Homeownership is Possible with Manufactured Housing
By: Triad Financial Services
Achieving the dream of homeownership continues to be an elusive goal for many prospective buyers due to low inventory, high loan rates, and record home prices. The sales of existing homes have recently reached a 30-year low, and the supply remains historically constrained, making it even more challenging for families to build household wealth through homeownership. However, there is a glimmer of hope in the form of Manufactured Housing, which is the largest source of non-subsidized affordable housing in the United States. Over 22 million people currently live in manufactured homes that are constructed in a factory according to stringent HUD codes, delivered, and permanently affixed to a foundation.
Financing a Manufactured Home
Of these homes, approximately 46% are secured by the home and land with a traditional mortgage and are considered Real Property. The remaining 26% of new homes shipped in 2022 are considered Personal Property or "Chattel" loans and they may be placed on private land or within a community whereas the borrower does not own the land. These loans carry higher note rates and shorter loan terms and are typically held on banks, credit unions, or specialty finance companies' balance sheets. There is no government-sponsored agency as a secondary market for Chattel Loans, so liquidity is not available for originators through traditional channels.
Unfortunately, limited access to financing for manufactured homes remains a significant barrier to affordable homeownership. For a loan to be sold to government-sponsored agencies, the home must be titled as Real Property. However, for borrowers purchasing the home-only and leasing the underlying land in a community or private land, there are fewer financing options available. Banks and credit unions may also require a 20% minimum down payment so coupled with higher loan payments this further erodes or eliminates affordability. This results in buyers utilizing specialty finance companies to acquire the home.
Manufactured Home Demographics
According to the American Community Survey (ACS), households living in manufactured homes are more likely to have lower incomes, with only 20% having incomes above $75K. The median age of manufactured home residents is 55, compared to 52 for site-built households. However, the demographics have evolved as the quality of construction has significantly improved, and buyers who would only consider site-built homes are now buying manufactured and modular homes due to quality of construction, breadth of designs, and affordability. In fact, homes built since 2000 are more likely to be occupied by people under the age of 45, and approximately 30% of these homeowners have incomes above $75K.
An Affordable Option
The Joint Center for Housing Studies (JCHS) at Harvard University notes that manufactured housing holds promise as an affordable form of housing that could expand homeowner opportunities for low- and moderate-income households. The construction cost of a manufactured home is estimated to be just 35% of a comparable site-built home. While these homes are less expensive to build, the quality of construction, multitude of floor plans, designs, and energy efficiencies are comparable, if not superior, to site-built homes. The ACS study found that manufactured homeowners rated on average a 7.9 on a scale of 1-10 in resident satisfaction surveys, which is slightly lower than site-built homeowners who average 8.5 but higher than renters. Studies have shown that appreciation rates of manufactured homes with land are similar to site-built homes, but manufactured homes without land tend to depreciate over time, as all housing structures do.
The JCHS study concludes that the quality of manufactured homes has improved significantly over the past decades, as evident by the high levels of resident satisfaction surveys and home appreciation. Manufactures continue to make innovations to the construction process while introducing floor plans that meet the needs of all homeowners. There are several barriers the industry faces, such as zoning and land use restrictions, housing conditions, negative consumer and collateral perceptions, as well as access to affordable financing. However, the industry does not pose any significant threat to area communities compared to site-built housing. With more affordable financing options and increased awareness of the quality of construction and benefits of manufactured homes, homeownership can be achieved by a broader spectrum of the population, ultimately improving communities, and building household wealth.
Manufactured Housing is a viable solution for affordable homeownership. The quality of construction of today’s manufactured homes allows buyers to choose from multiple floor plans and designs that appeal to homebuyers. Access to affordable financing remains a barrier to entry for homebuyers and financial institutions are evaluating this lending sector to help buyers achieve the dream of homeownership.