How Has COVID-19 Affected Your Future Mobile Home Purchase?
You may have heard, because of COVID-19, we are living in “unprecedented times.” Like everything else, the Manufactured Housing Industry (i.e. mobile home builders and dealers) has seen things we have never seen before. It has been a crazy ride so far this year.
If you are shopping for a mobile home, we thought you would like to know how these changes affect you as a mobile home buyer. Is it still a good time to buy or not? Should you change your current plans? Let’s dig into what is going on.
Lower Interest Rates
Interest rates are incredibly low right now and the Fed announced on September 16ththat they expect the rate to remain extremely low for 4-5 years. September 2019 saw a Federal Reserve rate of 2.25%. It’s one year later, and now the current rate is 0.25%. There isn’t much more room to cut the Fed rate so unless it goes down to zero, we are about as low as we are going to go.
Cuts in the Fed rate often mean a decrease in the interest rate for mortgages and chattel loans, which definitely happened this year. What does this mean for you? A 2% interest rate drop on a 20-year chattel loan for $100,000 means about $100/month savings and usually over $25,000 saved in lower total interest paid to the bank. (Disclaimer: this is not a promise regarding the interest rate you will personally receive, we are just drawing a general picture of what is going on).
Overall, these lower interest rates mean it is a great time to buy a home because the lower interest rates keep your monthly payment lower and mean you will end up paying the bank less money in interest during the life of the loan, but the savings with low interest rates were affected by our next impact.
Prices of Homes Are Unstable
Over the last few months, we have seen the factories update their prices several times. While normally you might see one to two small price updates a year from a factory, some factories have updated their pricing three or more times since the beginning of the year, and we haven’t even hit the Fall season yet.
Even worse, these weren’t small price changes. We have seen one factory increase their prices by 33%, with no promises to hold the line on pricing for anyone. That means we might see additional price increases before the end of the year.
The good news is, even with the price increases for the base price of homes, we haven’t seen significant changes to the delivery, install, and air conditioning costs. The price of upgrades to homes has also remained relatively stable, so even when the base price of a home sees huge price swings, your “all-in” cost changes by a much smaller percentage. Even with the factory that increased its price by 33%, we have seen the actual “all-in” increase to customers only come in at closer to 10-20%, and it is less of a change for other factories.
Do the price increases mean you don’t buy now if you don’t have a big need to move? Like we pointed out earlier, the low interest rates help offset the price increases, so at the end of the day, we have not seen monthly payments for similar homes change all that much from last year. We should add, buying a slightly more expensive manufactured home is still almost always less dollars per square foot every month than paying rent. By getting out from under renting, you are building equity and potentially saving money, which means a slightly more expensive home is still worth it.
What all this means for you is, if you are buying a new mobile home, make sure you get your paperwork done quickly and get a “locked-in” price if you can. Also, make sure you buy from a reputable dealer who will fight to keep the pricing they originally promised if it is within their power.
Down Payments “from the Government”
The stimulus checks the government sent out gave a lot of people extra cash in the bank they were not expecting. Many families saw $4,900 enter their bank account, $4,900 they were not expecting when the year started, $4,900 that quickly became part of a down payment on a new home.
As we get closer to the election, there is continued talk of another stimulus package which could include more checks to individuals and families. The pundits seem to think more checks to families is likely, but how much money we are talking is a big unknown right now.
Putting that money to work by investing in a home is pretty smart. You can build equity with your home purchase and potentially save money with lower housing costs if you buy the right home, especially if you get an energy efficient home.
The stimulus checks are a double-edged sword. Getting money for a down payment is nice, but since everyone else is getting a check, there will likely be another race of people to be next in line to order a new mobile home. Once those next stimulus checks come out, we expect a ton of people coming out to shop for a new mobile home. We recommend you do your homework early so you can be toward the front of the line.
A reputable dealer will understand what you are doing and will help you through as much of the process as possible before requiring the down payment, but of course, don’t commit to anything until the President signs on the dotted line and you know for 100% certain that check is coming your way.
Longer Wait Times for Made to Order Homes
It wasn’t that long ago that some factories had lead times (the wait time between order and delivery) as short as four weeks. We know of at least one factory that is now promising homes in as “little” as 30 weeks or about seven months. Oh My! We were shocked when we found out people are asked to wait seven months. Luckily, most factories are now holding steady with a 3-4 month lead time.
Like with every company where people have to physically come into work to get the job done, staffing is a problem. Whether someone has COVID-19 or has had a known exposure to COVID-19, not being able to come into work means one less person who can work on your new home. Some of the factories will also send a whole work team home for two weeks if one person tests positive for COVID-19. Labor shortages are a big problem right now.
If you don’t buy a home from a dealer’s on hand inventory, be prepared to wait a little longer for your home’s delivery.
Because of the long lead times and price increases, what do you expect is happening with homes dealerships have in stock which were bought at last year’s prices? You bet. Inventory at the dealerships is selling fast. Dealerships that had too much inventory on their lots are thanking their lucky stars because they can sell homes that they may have held longer than they wanted to.
What that means for you is that there are some homes available for delivery within just the time it takes to process your paperwork. In only a few weeks and at a significantly lower price that a made-to-order home, you could celebrate your move-in day. The bad news is, these stock homes are quickly disappearing because of the lower prices and the ability to move into a new home faster. If you can find a stock home with the options you want still available, you are in great shape.
We expect a lot of the extra inventory at dealerships to get sold off by the end of the year as demand remains high for manufactured homes. If you are okay buying a stock home, once you find one, move to close on that home as quickly as you can before someone snatches it out from under you.
We expect there to be a shortage of stock homes through most or all of 2021. That means most homes will be made-to-order homes with a long lead time.
The Industry is Evolving
While the other impacts are relevant for today, there have been other impacts in the industry that are creating long term change. COVID-19 has made the rate of change in many areas of our lives go even faster, and the same is true for the manufactured housing industry.
At first, the industry thought the bottom was dropping out. We at Braustin saw a full month’s worth of home deliveries get cancelled in about a two-week time span. Next Step, a nonprofit that helps people prepare for home ownership, did an industry survey that showed there might be a production reduction as high as 50%.
But then the unemployment rate stabilized, people who had jobs still wanted homes, and with the lower interest rate, now became a good time to buy a home. Many people started home shopping, but we couldn’t just do “business as normal.”
Many players in the manufactured housing industry took the opportunity to learn to serve home buyers better. We asked Chris Nicely at Next Step for his personal perspective and he told us:
“The innovation and perhaps even permanent change in making homes available to shoppers is where the revolution has begun (and Braustin and a few others paved the way with re-inventing the customer home buying experience). The disruption of the shutdown on the economy has forced people to go outside their area of comfort and status quo. It’s forced organizations to focus on the outcome and re-examine the process. As a result, the process is changing. More use (even reliance) on digital solicitation, education, trust building and home examinations.”
And what does it all mean? Changes to how the homes are built that increases quality while keeping manufactured homes affordable are occurring faster than originally expected. New players are coming onto the field, increasing competition, ensuring you and other home buyers are kept in the driver seat as a crowded field of suppliers works even harder to earn your business. We will quote Nicely again, since he says it so well.
This is just the beginning. Disruption forces creativity, innovation, expansion. There is ALWAYS a response – many times from those outside of an industry, and from early innovators within. The COVID shutdown, because of its duration, FORCED innovation; will continue to force creativity.
We will see it (and seeing the early entrance as we speak) in design, materials, construction and the solicitation and selling of homes. We will see it in increased receptivity to factory built [homes. We will see] New development concepts like community land trusts, infill lot population and new concept subdivisions. We are entering a new age for factory-built housing and it is our collective opportunity to serve the entire spectrum of housing needs; delivering the value promised with increased focus on customer service and satisfaction. A new status quo is being created.
We agree with Nicely. We feel this is a very exciting time to be part of the manufactured housing revolution.