Dealing and Wheeling in Mobile Homes
Brian Hansen, 23, a lumber-mill worker, and his wife Diane, 21, a hairdresser, love the new house they bought last spring in Creswell, Ore. Set on a 62-by-100-foot lot where their 21-month-old daughter Heidi plays, the three-bedroom house has two baths, one with a luxurious oval tub, a well-equipped kitchen and utility room, and a wood-paneled living room with rust-colored shag carpeting. “It’s so comfortable, and there’s so much room,” says Mrs. Hansen. “You’d never know it’s a mobile home.’’
Many — probably most — U.S. house hunters look down on mobile homes; even the euphemistic and inaccurate phrase is irritating. The image, based to a large extent on reality, is that of a $I0,000 shoebox for humans, set on a rural lot or in a rental park peopled by screeching children and disputatious adults. Getting people to view “trailers” more favorably has been a historic headache for the industry.
But in the past decade, a sizable proportion of mobile-home manufacturers has been turning out houses like the Hansens’ that are comparable to conventional houses — except much cheaper. The Hansens paid $46,900 for their mobile home and lot; a similar conventional house in Creswell costs about $60,000. And with the rise in quality has come an incipient revolution in the terms of buying and owning a mobile home. The main developments:
- Banks are offering mobile-home buyers mortgages rather than installment loans.
- Zoning restrictions are being loosened, and mobile homes are being set up in subdivisions and sold with their lots like suburban tract houses.
- Many states have started taxing mobile homes as real estate rather than as vehicles.
- Mobile homes have begun to appreciate in value. In the past they customarily declined, as cars do.
These changes come largely from the Cinderella-like transformation in the size and appearance of mobile homes. Although the so-called single-wide unit, now enlarged from 10 by 55 feet to as much as 14 by 75 feet, still accounts for about 70% of all mobile-home sales, more buyers each year are choosing models made of two, three or even four sections trucked separately and bolted together at the site. When these peak-roofed double-wides, triple-wides and quads are relieved of their wheels, planted on foundations, draped with wood or brick skirting and adorned with bushes and flowers, they look pretty much like ordinary houses.
Inside, newer models have such extras as cathedral ceilings, fireplaces, sunken bathtubs, Jacuzzis and wet bars. Rooms are large. Thus loaded, today’s “manufactured house,” as the industry now calls it, is only slightly more mobile than the Washington Monument.
Formerly notorious firetraps, mobile homes have also become safer. New construction standards imposed by the federal Department of Housing and Urban Development in 1976 require safe heating, electrical and plumbing systems and fire-retardant paneling. Smoke detectors near each bedroom warn sleepers of fire, and pop-out windows near beds permit easy escape.
All this has impressed a number of lenders across the country. Traditionally, banks finance mobile homes with installment loans, like those for cars. At the outset, the lender adds to the loan the total interest it will earn during its whole life; with conventional mortgages, the interest is paid on the declining balance of principal. “Add-on” interest does not in the end cost the borrower any more, nor are monthly payments any higher. But if the add-on buyer pays off early (as many, moving away, do), the consequences can be harsh. After paying five years of a 20- year, $20,000 add-on loan at an annual percentage rate of 14 2/3% the borrower would owe $23,500, more than he borrowed, even after the bank refunded “unearned finance charges.” On a declining-balance loan, he’d owe $18,800.
Most banks still finance mobile homes the add-on way. Slowly, though, “manufactured house financing is being remodeled to match the remodeled product,” says David Leichey, chairman of the National Finance Committee of the Western Manufactured Housing Institute, a trade organization.
As a first step, many lenders have switched to charging mortgage-style interest. In western states where mobile homes have become popular, banks have also lowered interest rates, which have run as high as 18%, and lengthened repayment periods, which commonly ran as low as 12, 10 or even seven years.
Sixteen months ago, the Crocker Bank in California began to offer 25-year loans to mobile-home buyers at half a percentage point more than prevailing mortgage interest rates. A number of other banks followed suit. The Federal Housing Administration will now guarantee 20-year bank loans up to $24,000 on manufactured houses, and the Veterans Administration offers the same period with varying dollar limits.
Since last fall, the mortgage money shortage and high interest rates have at least temporarily jeopardized these tentative new lending practices. FHA loan guarantees peg interest-rate limits at 14 1/2%, the VA at 14%. Before making loans at this rate, some lending institutions have been charging mobile-home sellers as much as 13 points. (A point is a sum equal to 1% of the loan. Sellers often pass at least part of this charge along to the buyer.) Still, George Alexander, head of the VA’s mobile-home program, says he is optimistic. “Eventually, manufactured housing will be financed just like any other kind of real estate,” he says.
An important stimulus for the shift in financing is the change in the way that states tax mobile homes. Most western states (including California, starting July 1) let mobile-home owners who put their houses on their own land pay local property taxes instead of state motor-vehicle taxes. Laws and court decisions in other states, including Nebraska, New Jersey and Vermont, have also recognized mobile homes as real estate. Thus more of the mobile-home owners’ taxes are going into community services such as schools and garbage collection rather than state coffers and general funds. But property taxes tend to be higher than vehicle taxes.
Perhaps as a result, a few local governments are permitting the development of mobile-home communities. Buyers no longer rent land but purchase a mobile home and its lot together, just as they would buy a house. The lack of affordable housing has prodded other localities to act. In Orange County, Calif., where the average new house now costs $134,000, the county government recently rezoned 62,000 acres to include mobile-home subdivisions. Thomas F. Riley, of the county board of supervisors, says, “Many people who work in the county can’t afford to live here. We had to bring in lower-cost housing.”
Typical of these subdivisions is Lake Mountain Estates in Boulder City, Nev., where manufactured houses sit on their own terraced lots overlooking Lake Mead, a few miles away. Conventional houses around there start at $125,000, but in the development, where a pool and a recreation center are being built, most of the mobile homes cost between $45,000 and $60,000.
Such houses should be good investments. “Mobile homes on their own lots generally appreciate just like single-family houses in the same area because the land always has some intrinsic value,” contends Harry Falck, a Florida real estate broker. Across the country, the median price of single-family houses rose 14% last year.
Foremost Insurance Co., the nation’s largest mobile-home insurer, found in a study completed late in 1979 that even old 12-foot single-wides are mostly worth at least a little more than their original prices. Explains Patrick Calligan, editor of the NADA Mobile Home Appraisal Guide: “Many buyers can’t find a park to put a new mobile home in, so there’s a lot of demand for older models already in good parks.”
Nationwide, double-wides sold in 1978 gained 4% on average in the first two quarters of 1979. In California, where all housing sells at a premium, mobile homes have been going up by as much as 25% a year.
The rising value of older mobile homes was what enabled the Hansens to buy their brand-new double-wide. Two years ago they bought a 1963 single-wide for $3,400. Last year they sold it for $5,000, enough for a down payment on their $46,900 house and lot at the Creswood Mobile Home Community. With a 25-year, 12% mortgage, their $440 monthly payments fit comfortably into their annual combined income of $26,000. Cost wasn’t the only factor in the Hansens’ choice. While shopping they found that they would have to pay $10,000 more for a run-down conventional house without a backyard in a commercial area. “The mobile home has really worked out well for us,” says Diane Hansen.
What works for them may not for others, who may think, for example, that a house isn’t a house without a basement and an attic. Nevertheless, mobile-home specialists including Robert Berner, a Citicorp vice president, believe that production of mobile homes, which was 270,000 last year, will rise steadily. Berner predicts that by the end of the century 85% of all new housing will be manufactured. But mobile homes may be one of those industries that have a bright future and always will. Whether the high cost of housing will prod Americans to discard their prejudices against even today’s improved mobile homes still remains in doubt.