Tuesday, January 19, 2016

Can You Afford to Build Affordable Housing?


How many times a day do you hear a modular home builder or a modular factory say they build “Affordable” homes? Personally I hear it a lot. What I hear little about however is exactly what is an “Affordable” house?

The official definition is:
The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.

But that is a little misleading. In fact it’s very misleading. The Index for First Time Home Buyers below shows that a first time homeowner that had a median income in 2015 of $44,000 can only afford a home costing $194,000. That leaves them with several choices. Buy an existing home or buying a small townhouse or condo.

A new home on any home is more than $194,000 unless it is a manufactured home on a rural lot. Any modular home builder that tries to build a home for this market will soon be out of business.


FIRST-TIME HOMEBUYER AFFORDABILITY


















Effective

Prime

Starter
10% Down
Loan
Interest
Monthly
First-Time
Year
Home Price
Payment
Amount
Rate
Payment
Median Income
2012
150,600
15,060
135,540
3.83
653
40,643
2013
167,800
16,780
151,020
4.00
743
41,620
2014
177,600
17,760
159,840
4.31
816
42,842







2015
194,700
19,470
175,230
4.15
877
44,020









Now let’s look at the Affordability Index for all home buyers. They could afford to buy a median priced home for $229,000 in 2015. Again you have to ask yourself if one of your prospective new home buyers can afford to build a home with you.


Quarterly Housing Affordability Index









Median Price

Payment
Median

for Single
Mortgage
as a % of
Family
Year
Family Home
Rate
Income
Income
2012
177,200
3.83
12.7
62,527
2013
197,400
4
14.1
64,030
2014
208,900
4.31
15.1
65,910
2015
229,000
4.15
13.5
67,723


The answer is “probably not.” Yet we all think that modular home factories can magically churn out houses that fit this market.

SO what is the humble modular home builder to do?

First, nobody knows your market better than you. Look at the homes being built in it and find what a new home on a single family lot NOT in a tract development are selling for and/or the amount of mortgage taken out on them. It will take a little digging but all that info is available.

Next, begin marketing to both the markets that are buying in that price range and to the more upscale market where prices tend to bring extra profits.

Let the “Affordable” houses for the Realtors selling used homes and to the manufactured home people and get started promoting your business to the only markets a modular home builder can be successful in, the current average (not median) new home buyer and the upscale new home buyer.

1 comment:

Anonymous said...

The perception that modular can magically deliver such homes is a result of the industry continuing to stress 15-25% savings versus site built homes reinforcing the view that modular is just a step above manufactured. Of course, it doesn't help that many dual production factories continue to produce "Hudular" products resulting in mixed views by appraisers for true modular.

Like any tract or other custom in fill or scattered lot builder our builders need to understand their market and the true cost of delivery from their factory; impact fees; lot cost (yes, clients typically own these but it is a factor for comparison); and local labor costs for completion.

Based on these factors determine which factory, plans, and options meet your widest market or maybe a niche you have discovered and market those plans, options, and modular's value.

The other factor to consider is the price differential between new and used markets where some premiums range from 10-25% over existing regardless of who builds the home. Be ready to explain this premium.