The late John Naisbitt coined the term “megatrend” to describe “long-term and transformative forces” that he saw in the U.S. economy. But all megatrends start small and grow over time, like the Mighty Oak. In this Mobile Home Park Mastery podcast we’re going to explore the new “megatrends” that impact the mobile home park sector with predictions on their direction over time.
Episode 383: The New Megatrends Transcript
In 1982, the late John Naisbitt coined the term megatrend. And what a megatrend is, is a seismic shift that has a huge impact on all of us. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're going to talk about some of the new megatrends on the horizon that will have an impact on mobile home parks and really all of American life. Let's first start off with a new megatrend. And of course, megatrends grow like the mighty oak from an acorn into something of massive proportions. And one item that people need to start taking note of is we're back to having regular interest rate cycles. Because it's been so long since we had an interest rate cycle that most people had either forgotten about it or assumed we were done with that chapter of American economics. What's an interest rate cycle? Basically, you have a top and a bottom to any cycle of the US economy. And that reflects how interest rates work out. The last time we had a cycle where we had a decline in interest rates was all the way back in 2007, 2008 with the great Recession. Now prior to that though, we'd seen the same cycle in all the earlier recessions.
You might have remembered seeing the same thing in the dot com bust. Only seven years ahead of that. And we standardly have recessions in the US about every seven to eight years, pretty much with just such incredible regularity. And then subsequent to the Great Recession, they stopped happening. We should have had another one if we go by our regular eight year centers by 2016, but we didn't have one. And then certainly we should have had one at least by eight years beyond that 2024, but we still didn't have one. But now, finally we're starting to see it happen. Interest rates right now are pretty much where they were back during 2006 before the Great Recession began. And more than likely they will follow the same trajectory down. We just don't know how far they will go down or how fast it will take for them to go down, but they're definitely going to go down. And for for many younger people, they've never seen the cycle before because they weren't adults all the way back during the Great Recession. They were recent entrance to the job market and such. They had no idea that interest rates do change direction.
They thought that 2% mortgages would be around forever and CDs would be paying a half of a point forever. But nope, that's not how it really works. So this will come as quite a shock to many people who did not realize that things do run in cycles. What does it all mean? Well, it means from a mobile home park perspective, this is the best time to buy a mobile home park. Simply because when you buy a mobile home park, as interest rates decline, then everything gets better, even if you don't do anything spectacular yourself. If you buy a mobile home park at a 2 point spread and interest rates go down 2 points, then you have a 4 point spread even if you didn't raise the rent or fill a single vacant lot. So this is exactly the right moment on the cycle to buy things. But the big megatrend is, yes, we are going to have interest rate cycles again. We're not ever going to have flatline when it comes to interest rates.
Another megatrend that we all know we see it growing is the growing disconnect between red and blue states. Someone a while back wrote an article I thought fascinating, which was, we're going through a cold civil war, not one with guns and cannons like back in the 1860s. This new one is going to be just the fact that the states are going to separate based on political ideologies and they're going to kind of ignore the federal government. If you recall, in the 1860s Civil War, the whole point was trying to hold America together as a nation because the states wanted to secede from each other. This time around, they won't really secede from each other. They'll just basically ignore the laws and the rules and the regulations of the federal government and just do it their own way. So what will the impact be from that? Well, you're going to see some very different approaches from a mobile home park perspective on such topics as landlords and tenant rights and evictions and rent increases and all kinds of things.
So what it will bring about probably is people starting to favor red states over the blue, since red states are traditionally more landlord friendly. But I think you'll also start seeing some seismic shifts just in the economic construction of the blue states and the red states, because as businesses start pouring more into the red states from the blue states, the tax base will erode and the jobs will leave. And I don't know what the blue states will do to compensate that probably even greater tax, which would just force more people to leave. But clearly right now in America, the country's never been more polarized and you can come to your own conclusions on what the end result is. But it is a megatrend that we all have to acknowledge and accept.
Then you have in the mobile home park business the spread between new and used home prices. This is a megatrend that began only a few years ago during COVID. Prior to COVID, the price of a new home was not exponentially more than a used home. So many mobile home park owners would buy new homes with abandon because it wasn't paying that much more of a premium. But then a couple things took effect. Number one, you had the supposed supply chain disruption, which made all mobile home prices go up, sometimes double, sometimes even triple. So the hunt that we were buying and 2019 for $40,000 overnight became $80,000 with delivery. And you also had more states starting to accept the poorly thought out HUD installation standard of a concrete slab, piers or runners. And that can add an extra 10 to $20,000 onto the price of a new home. Yet in most states, you're not required to do it on a used home. And this is a new story and a megatrend that will only grow deeper in the industry as time goes on, because a lot of people have a lot of vacant lots out there. The average mobile home park probably has only 80% occupancy, so 20% still to fill.
And the problem is, how will those lots be filled now? You can still fill lots with new homes. You have to be really good at it. We've been selling off about 1200 homes a year for five years now. And so we've really focused on that science. But not every market can support selling in volume. New homes are too expensive. So in those cases, you have to acknowledge that on the front end and only go forward with used homes to fill those vacant lots. But I look to see that differential between new and used really kind of grow over time. For many buyers who are doing used homes, they typically go after those 1990s homes because the 1990s homes have the same look both inside and outside as the new one. The floor plans are identical, and you can buy them relatively cheap. As time is pressed on those '90's homes have become reflective of what we in the industry 30 years ago were looking at '70s homes as, as far as price points. So that's another megatrend that every owner needs to ponder is should I go with new homes or used homes? And when you're buying parks with lots of vacancy, the key question is, how am I going to fill those lots? And can this park accept and sell new homes or not? Another megatrend we're seeing is more upscale customers in the industry.
And that's yielding a lot greater pressure on almost everything. It's higher pressure to raise rents because we can, because the residents have more money. And mobile home park rents are crazy, stupid, ridiculously cheap. I don't care what any liberal publication may try and tell you, you know better. When you go to Costco and you see the hot dog special at Costco at $1.50, you know that's crazy. No one could try and tell you, oh yes, that's usurious. That's just terrible what they're doing there. It's abhorrent that they should charge $1.50. No one would believe that. And yet that's what our rents are like. Our rents are about $300 or so on average in the US yet the average apartment's at 2,000. The average house is at 400,000. So you tell me what's cheap and what's not cheap.
But as residents in mobile home parks grow in stature, economically and demographically, because they cannot afford the $400,000 house or the $2,000 a month apartment, you have much greater flexibility to bring your rents more towards market where they've been woefully behind literally for decades now. But with those rents increasing and the customers becoming higher level demographically, there will now be greater pressure on people to do a better job of being mobile home park owners as far as the condition of the property. So it kind of goes both ways. If you want to have a more upscale audience, that's terrific, but you'll have to provide a more upscale product. That's why park owners from coast to coast are racing to improve their common areas and all other items of interest to the residents so that they can attract and retain higher end customers. And I see that trend again only escalating in the times ahead. I think the old traditional stigma of a trailer park resident is kind of going out the window because with home prices so high in good markets, you have many people who would traditionally live in stick built houses or condominiums, who instead can only afford mobile home parks.
So it's good for park owners, but it also puts extra pressure on park owners. The final megatrend, which we're seeing in its infancy, but will only grow over time, is the clear superiority of the mobile home park business model to most every other form of real estate. Now we've seen this growing. It started off really with the Internet, right? So when you could suddenly order things on Amazon or walmart.com and have them delivered to your door, you probably stopped going out to the stores as much. And millions and millions and millions of Americans did. And that caused suddenly a decline in retail, because people didn't need to go buy the big brick store to buy things. They could just buy it online and have it delivered. And that really hurt retail. And retail has never recovered, and I don't think they ever will recover from that. And that's why so many malls and places are half empty, Just because no one really needs retail stores anymore, at least not in the volume of the number of stores we've built. But then on top of that, in the world of office, technology brought things like zoom meetings and GoToMeeting webinars, and suddenly we didn't all have to be together in offices anymore.
And a lot more people started working remotely. And then that accelerated with COVID And even though they're in many businesses calling them back to the office, there's still a whole lot that they're not. And then ones they do bring back to the office aren't there typically five days a week. And the national demand for office space has just fallen off a cliff. Then you have the lodging issue. Again through technology, people no longer have to go to these big conferences and meetings. They can do it virtually, which they prefer to do anyway. So technology has really changed the face of real estate. But on top of that, we have a recession. I mean, whether we want to acknowledge it or not, I think we will be acknowledging it soon. The American economy has gone down the drain.
We're an economy now where the top 10% of earners do 55% of all spending, and the bottom 90% of all American consumers only spend 45%. That's a recipe for disaster as many have pointed out, it's a straight fallback to the roaring '20s, where the whole economy is being bolstered by people who are just on a wild, endless spending spree until they lose confidence and stop. So when that does happen, what happens? Well, people no longer shop in shop or buy things. There goes retail, and they don't store things. So they're going to sell storage. And they don't need as many factories. There goes industrial. They sure don't need to meet because those factories have shut down. So there goes lodging. And of course, as the businesses stop, there goes office. So what's happened is that only two sectors are still doing any good.
One is apartments. The other is mobile home parks. We anticipate mobile home parks at some point to even get a clear advantage over apartments, as apartments suffer through one issue the parks don't and that is oversupply. And in many US Markets right now, apartments have achieved oversupply. They built way too many of them. Whereas in mobile home parks, you haven't been able to build new ones in any quantity since the 1970s. So we've had a 50 year drought of new construction, which will be followed by another 50 year, then another 50 year, because cities across America no longer allow you to build them. The bottom line to it is that always there are new things happening. Things never just flatline. They don't stop. There's always change. There's always development. You have to watch for megatrends when you see them, embrace the ones you feel have longevity, and then move your business accordingly. So you're always on the right side of all those megatrends. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.