From the weird and wonderful head of Nicholas Colas, ConvergEx Group chief market strategist and bringer of alternative economic indicators galore.
This one’s focused on mobile home sales, a.k.a “manufactured” housing.
As Colas notes mobile-home sales and prices slipped in line with the broader US housing market over the last few years. But recently there’s been a bit of a pick-up. In fact, there’s been something of a break-out:
From Colas’ Wednesday note:
Whether and how that sanguine trend seeps into the single family home housing market remains to be seen, with ‘Shadow” inventory levels and an opaque foreclosure pipeline make this a tougher call. Not to mention the difference in demographics between the two buyer bases. And while mobile home sales volumes are up, prices for manufactured houses are still negative year on year. If nothing else, the contours of the current recovery in this narrow part of the housing market likely inform the likely path of eventual recovery for the industry as a whole.
Colas also provides some interesting colour about the history of mobile-home economics. Apparently the heyday for caravan living in the United States came around the 1970s, what Colas calls “The Rockford Files” era (since Rockford lived in a trailer).
Much past 1980, the industry saw a slowing down of the dramatic growth it had experienced post World War II. Nevertheless, by 2010, manufactured homes represented 6.6 per cent of the total US housing stock according to that year’s census — something in the region of 8.9m dwellings.
The regional distribution of those dwellings, meanwhile, came as follows:
The states with the highest penetration rates for mobile homes include South Carolina (17.6%), New Mexico (16.5%), West Virginia (16.1%), Mississippi (15.6%) and North Carolina (14.0%). Assuming an average of 2 people per household, there are almost 18 million people living in mobile homes across America. If they were all clustered into one state, it would be the 5th largest by population, well ahead of Illinois and just behind Florida.
The economics gets even more interesting when you consider that ownership of mobile homes has to be disaggregated from land purchase — the bit of the homing equation which usually appreciates over time. As Colas notes, what’s left is actually the depreciating mobile structure, much like a car:
The economics of owning a manufactured home can be different from traditional home ownership. In a manufactured home “Park,” for example, the resident will either buy or rent the structure and pay rent on the land separately. This effectively disaggregates the purchase of the land (the part that appreciates over the long term) from the structure, which actually depreciates without proper care and upkeep. There are over 38,000 trailer parks in the US.
The cost of purchasing a new manufactured home is currently $41/square foot for a single-wide structure and $46/square foot for a double-wide. A single wide is 18 feet or less in width – a double wide is 20 feet or more. That compares to the average price of an existing single family home of $65/square foot and $91/square foot for a new detached home. The average are of a single wide is 1,000 square feet; for a double wide the average is 1,600 square feet. The typical single family home is closer to 2,400 square feet. Average price of a single-wide, nationwide: $40,600 in 2011, up from $30,200 in 2000. For a double wide, the current average is $74,200, up from $53,600 in 2000.
· There are mobile home parks within 50 miles of New York City, lest you think this analysis is far beyond the realm of relevance to a resident of Gotham. Or pretty much any other city, for that matter. You can buy one of several nice examples in Avenel or Carteret, New Jersey for well under $150,000, for example. If you want to see what might be available near you, try http://www.mhvillage.com/.
But what does all this tell us?
Well, according to Colas, the fact that the manufactured home industry is a large and important part of the recent bounce in the means it may be time to get a little more optimistic about housing.
Or as he puts it:
December 2011 shipped 3,800 units, up from 2,700 in the last month of 2010. And November 2011 saw 5,300 manufactured homes shipped, up from 3,500 in November 2010. OK, these are small numbers, to be sure. But when was the last time you heard about anything in the housing sector print +30% comparisons? At least anything not having to do with foreclosures. Actual placements are also in the increase – up just less than 9% year over year.
Inventory levels are therefore up seasonally, to 6 months supply according to the U.S. Census Bureau. At the same time, this is the lowest January inventory since 2008.
Bottom line, this could be a precursor for an eventual recovery in US single family housing. And even if the snapback in volumes purchased hasn’t been accompanied by a recovery in pricing (see chart above), that’s not to say there won’t be a price rise in housing. After all, as Colas reminds, manufactured homes are priced without the land on which they sit. Not the case for traditional homes.
As he concludes on the matter of mobile homes:
They represent the utility of housing as distinct from the investment merits of land ownership. And their price points, at significant discounts to the house/land combination of a traditional dwelling are clearly compelling – hence the increase in demand of late. The broader demographic trend that many housing experts believe will eventually turn the residential property market are already at play in the mobile home market. But that may only be enough to turn unit demand higher – not price.
Gangster economics – FT Alphaville
When household formation growth returns – FT Alphaville
Demographics and destiny, US housing edition – FT Alphaville
The decline of US housing inventory – FT Alphaville