Manufactured Housing: Becoming Mainstream?

Numerous data sources provide a robust picture of the manufactured-housing segment of the American housing market. Yet, surprisingly, much of this information goes unreported, perhaps because stereotypes lead most of us to conclude that this is an extremely limited market. Regardless, manufactured homes already represent more than 6.5 percent of all occupied housing in the United States, up from less than 3 percent 30 years ago. (See Table 1.) Even more impressive, by one measure, manufactured housing accounts for nearly one-fifth of all new housing in the country[1]. Another measure of the scale of manufactured housing is the ratio of manufactured homes placed to permits for single-family housing[2]. Nationwide, from 1994 to 2000 the number of manufactured homes that were placed equaled 29 percent of the total number of permits for single-family homes.

Why is manufactured housing becoming so prevalent? Since HUD standards came into effect in 1976, reliability and quality have improved. New consumer protection laws have helped, too. Consumers are also getting more of what they want: space and amenities. Nearly 97 percent of manufactured homes placed last year had at least three bedrooms. The increasingly popular double-wides averaged well over 1,600 square feet of space. Three-quarters of the homes came with central air-conditioning. Seven in 10 were placed outside of manufactured home communities. Cost is also a factor. Although the prices on these homes are going up, the average price of a double-wide is still about 40 percent of the price of a site-built house ($53,900 for the average sales price of new manufactured double-wide homes vs. $134,100 for the mean value of single-family units authorized by permit).

The trend to title manufactured homes as real property instead of personal property also seems to be boosting their popularity. As real property, such homes are likely to qualify for lower loan rates. Some research suggests that the real-property designation will also help these homes appreciate in value—certainly not a trend of the past.

Taken together, all of these factors seem to be enabling manufactured housing to compete on many levels with site-built homes rather than being a separate second-tier market. Considering that one in 15 households in America lives in manufactured housing, its acceptance as a mainstream alternative might be just around the corner.

Recent Developments

From 1994 to 2000, there were 2.27 million new manufactured homes placed by manufacturers; during the same time, permits were authorized for 7.83 million single-family homes. Sales of manufactured homes have been weak the past two years, but industry observers expect a rebound in the coming year as excess production capacity is removed.

In 2000, there were 10 states with at least 2.2 new manufactured homes placed per 1,000 residents. Four of these states are served by the Federal Reserve Bank of St. Louis: Mississippi, Tennessee, Arkansas and Kentucky.

Nationwide in 2000, two new manufactured homes were placed for every 12 permits for single-family homes. However, the numbers show great variability across the country. At one extreme is West Virginia, the only state where the number of new manufactured homes placed exceeded the number of permits for single-family houses. At the opposite end of the spectrum is New England, where just one new manufactured home was placed for every 12 permits for single-family homes. Moving south, the percentage increases. In the region consisting of Alabama, Kentucky, Mississippi and Tennessee, more than six new manufactured homes were placed for every 12 permits. In eight states in all, new manufactured homes placed equaled at least 50 percent of the permits issued for single-family homes. Three of those states are in the Eighth District: Arkansas, Kentucky and Mississippi. (See Table 2.)

St. Louis Federal Reserve District

Among the 273,000 new manufactured homes placed nationwide in 2000, nearly 55,000 or 20 percent were in the seven states for which the Federal Reserve Bank of St. Louis has at least some jurisdiction: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. In comparison, these seven states comprise just 14 percent of the nation's population. As mentioned, from 1994 through 2000, the number of manufactured homes placed nationally was 29 percent of the number of permits for single-family homes. In the seven states served by the St. Louis Fed, the ratio was even higher—the 467,000 manufactured homes placed over these seven years equaled 46.4 percent of the total number of permits for single-family homes.

The trend away from single-unit homes to double-wides was most pronounced in this seven-state region. In 1994, fewer than 40 percent of the manufactured homes placed in this region were double units. By 2000, double units accounted for nearly 60 percent of manufactured housing. Nationwide, the number of single-unit manufactured homes placed in 2000 was down some 42 percent from 1994 while the number of double units experienced 34 percent growth. Prices of both manufactured singles and doubles are about 4 percent lower in the Eighth District states than the nation as a whole, which mirrors the differential between the regional and national values of permitted single-family homes.

Affordability and Ownership

The research on who lives in manufactured housing chips away at the stereotype of renters living in poverty. More than 75 percent of households with income below the poverty level that live in manufactured housing own their homes compared with a 44 percent ownership rate for all housing types. Further, at all income levels, ownership rates for manufactured housing (83.3 percent vs. 66.9 percent for all housing in 1999) are actually higher than for other housing types. (See Table 3.)

Obviously, affordability factors into the ownership choice of housing type as the median income for all households in owner-occupied housing was $46,616 in 1999 (70 percent higher than for households in owner-occupied manufactured homes). Slightly more than 8 percent of all homeowners lived in manufactured homes in 1999. Out of all the homeowners whose income is between 50 and 99 percent of the poverty level, 20 percent occupied manufactured housing. Even for those homeowners whose income is at least double the poverty level, 5.9 percent lived in manufactured housing.

Real Estate vs. Personal Property

One important trend in the industry is the move to title manufactured homes as real estate rather than personal property. Titling is necessary for participation in several government lending programs, for lower interest rates on collateralized loans and for packaging loans to sell to secondary markets. In 1994, fewer than 15 percent of manufactured homes were titled as real property nation-wide. By the year 2000, this had risen to nearly 25 percent.

Just this spring, Texas introduced legislation requiring that manufactured homes attached to real property be classified and taxed as real property as long as the land is titled to the homeowner under deed or contract for sale. The new Texas statute further requires that home installation satisfy the lending requirements of the Federal Housing Administration (FHA), Fannie Mae or Freddie Mac for long-term mortgage loans or for FHA insurance. Some states are even friendlier to manufactured homes, allowing titling as real estate regardless of the ownership of the underlying land.

Real property designation provides not only for better lending terms, but often is associated with property appreciation. However, other factors might also influence whether a manufactured home appreciates or depreciates. Some research suggests that changes in the value of manufactured homes are more likely to mirror those of the surrounding community. For example, manufactured homes in blighted trailer parks depreciate while those in stable neighborhoods mixed in among site-built homes may not.

The Future

The manufactured housing industry is changing, and even the current downturn does not diminish its potential. As site-built housing costs rise, manufactured housing becomes an increasingly acceptable alternative. Demographic trends favor this market because its historic customer base is skewed with very young householders and senior citizens. Marketing changes—such as a novel partnership with Fleetwood (one of the two largest manufacturers) which now brings the Sam's Club name to manufactured housing retailers in nine states—are expanding product awareness. Solutions to legal impediments (like titling), changes in regulation (such as updated building codes), gains in consumer protection (for example, the Home Ownership and Equity Protection Act) and consumer awareness efforts are working to make manufactured housing a mainstream housing alternative. As 20 percent or more of new homes continue to come from this source, the only real question is to what extent this alternative to site-built homes will capture markets in which it's currently not competitive, such as higher-income and big-city households.

Endnotes

1. This measure-the number of mobile homes built between 1995 and 1999 divided by the total of all housing built between 1995 and 1999, which equals 19.4 percent-is from the 1999 American Housing Survey. [ back to text ]
2. These data don't allow true "apples-to-apples" comparison for many reasons, including the following: manufactured homes placed might not require permits, permits might not lead to actual home construction or placement, and the comparison excludes multifamily housing. Still, these data are available at the state and metro levels, allowing for useful relative comparisons. [ back to text ]