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How Do Manufactured Home Values Stack Up to Traditional Home Values?

There is a common misconception about the value of manufactured homes, which could prevent either buyers or investors from entering this market. The long-held belief is that prefabricated homes either don't appreciate in value or, worse, lose value over time. A new study reveals that these affordable alternatives appreciate in value at levels similar to site-built homes.

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Tracking Manufactured Home Prices

This nation has an ongoing affordable housing shortage, so it makes sense that manufactured homes would be a viable choice. These prefabricated homes can be up to 47 percent cheaper per square foot than a traditionally-built home. Unfortunately, their supply is running short as well thanks to misconceptions about value, zoning restrictions, and unavailable financing. Supplies of manufactured homes are down from 242,000 units shipped per year from 1977 to 1993 to just 92,500 units in 2017.

The Federal Housing Finance Agency (FHFA), the oversight agency for the government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae, publishes a detailed quarterly report on U.S. housing prices. In its latest report, it included data on manufactured housing (MH) for the first time. Although the data is still preliminary and experimental, it reveals some surprising statistics regarding price appreciation of manufactured homes.

Does Manufactured Housing Appreciate the Same as Traditional Homes?

The FHFA's latest quarterly report indicates that the assumptions about manufactured home values may need to be reevaluated. The agency's price index looks at repeat sales of the same property, calculating price appreciation on a national level. The index only considered MHs that were titled as real property and guaranteed by a GSE.

While the MH home index is slightly more volatile and below the site-built home index, the results are surprising. Over the period studied (Q4 1996 to Q2 2018), the national index for traditional site-built homes shows a 3.8 percent annual growth rate versus 3.4 percent for the MH index.

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How Geography Impacts the Value of Manufactured Homes

The MH market is more robust in some parts of the country than others. The top five states for MHs are Florida, Alabama, Louisiana, Texas, and North Carolina, which not only account for 41 percent of the market since 2011 but also have price appreciation below the FHFA index national average.

In other areas, where there is an affordable housing shortage, MH values are soaring. California, for example, accounts for just 4 percent of the new MH units shipped but the prices of units have jumped 9.43 percent since 2012 compared to a national average of 5.87 percent.

In areas of severe home price appreciation, such as center cities, the MH market is underrepresented. Conversely, it may be overrepresented in nonmetropolitan and suburban areas. Researchers believe that, once adjusted for geographic differences, the price appreciation of site-built homes and MHs are similar.

Is This Sector a Worthwhile Investment?

Another difference between manufactured and stick-built homes is the way that they are financed. If you are selling or buying loans, you won't find many of these assets held by traditional mortgages. Instead, roughly 80 percent are financed through a chattel loan, which is a personal loan similar to a car loan.

GSEs will only underwrite mortgage loans on MHs when it includes both the land and structure. Since land generally appreciates faster than structures, it makes sense that these categories are appreciating in line with traditionally-built homes. In 2017, the average value of a GSE MH loan origination was $130,000.

When managing a loan portfolio, some of these are shorter-term assets that may be more attractive in the current environment to maximize returns and reduce risk. However, note buyers will receive the best value by locating loans that include the land. An asset management company can further explain these benefits and facilitate this process.