With Housing Affordability on the Decline, Trailer Parks Gain a New Appeal
America’s growing affordability housing gap is prompting many people to rethink the traditional single-family home and instead consider mobile home communities. Changing demographics have created demand for a different kind of lifestyle and what would have once been undesirable now comes with modern, energy-efficient homes, lawns, playgrounds and swimming pools. Many are located near the sea or lakes. These modern incarnations of trailer parks are an increasingly attractive choice for retiring baby boomers looking to extract equity from the family home yet still retain their own standalone home—and, crucially, for millennial-age young families.
According to the Manufactured Housing Institute, the average cost of a manufactured home (not including land) is $70,600. This represents two years of median income in the US. Compare this to $286,814 for a single family home (without land), which represents around eight years of median income. There is a similar gap for rental housing.
The affordability of manufactured housing is due to the efficiencies of the factory-building process. Manufactured homes are constructed with standard building materials, and are built almost entirely offsite in a factory. The controlled construction environment and assembly line techniques remove many of the problems encountered during traditional home construction, such as weather, theft, vandalism, damage to building products and materials, and unskilled labor. Factory employees are trained and managed more effectively and efficiently than the system of contracted labor employed by the site-built home construction industry.
There are three public companies in this sector: Sun Communities, Equity Lifestyle Properties, and UMH Properties. SUI and ELS who are focused more on modernized parks in high population-growth states, have significantly outperformed other real-estate investments. UMH, on the other hand, is focused on providing quality housing at the lowest cost in the energy-rich Marcellus and Utica Shale regions.
While they have all trailed the S&P500, comparing these stocks with the benchmark index solely on share appreciation does not tell the whole story. All three have good dividend yields. A core part of the attraction for investors is the relatively low capital cost required to maintain the properties at a high standard within manufactured-housing communities. And they have had some of the highest operating income growth in the real estate sector.
All three companies have grown through aggressive acquisition of owner-operated communities. This growth is slowing as owners see more opportunity as standalone operators. For the public companies, growth is through a mix of rent increases, development of existing sites, and diversification. Ryan Lumb, an analyst at Green Street Advisors, describes manufactured-housing communities as “an anomaly in commercial real estate,” referring to the scarcity of supply because new communities are difficult to develop due to NIMBY-ism and permitting requirements while demand for cheap housing is consistently high.
While the “millennial infusion” has not happened yet, according to Lumb, there is a lot of experimentation going on the industry. ELS has trialed tiny homes and yurt communities while government-backed loan providers Fannie Mae and Freddie Mac are undertaking pilot programs for loan provision for manufactured homes. There is recognition that a shrinking middle class and a desire for less stuff and more experiences opens up demand for a new way of living for many Americans.
Citations
- http://bit.ly/2mIxVPl – Quartz.com
- http://bit.ly/2rdCKoY – Manufactured Housing Institute
ArcelorMittal Bets on a Future of Cars Made from Steel
The automobile of the future is not just about batteries and self-driving computers. For ArcelorMittal, the world’s largest steelmaker, that evolution could determine whether the metal retains a century-long role as the primary material in most new cars and trucks. For years, steel has been losing share to aluminum, alloys and plastics. While steel parts are stronger and cheaper, they are heavier. Automakers wanted lighter vehicles that pollute less. In 2014, ArcelorMittal was stunned when customer Ford Motor Co. said it would remove about 700 pounds of steel from its F-150 pickup trucks by using more aluminum, mostly in the outer body.
But steel could get a boost as the world adds more electric vehicles from the likes of Tesla Inc. and Nissan Motor Co. With no internal-combustion engine to worry about, ArcelorMittal says designers may favor strength, durability and cost in the materials they use. And steelmakers have improved their products, developing lighter alternatives to win back business. “Safety will be front and center for many years to come,” said Gregory Ludkovsky, the 67-year-old scientist and engineer who heads ArcelorMittal’s research and development center in Montataire, France. “The most precious cargo is people. But the battery is also a precious cargo and requires specific protection. You need steel to protect both. I believe that electric vehicles create a very serious problem for the aluminum industry.”
Steel remains a dominant component for most vehicles, with about 900 kilograms in the average car. While aluminum accounts for just 180 kilograms, that share has been growing. By 2020, more frames will be made of the lightweight metal, boosting its average to about 211 kilograms, according to Drucker Worldwide, an auto-industry researcher based in Troy, Michigan. Decisions about materials matter because vehicle and parts manufacturers are the most profitable customers for Luxembourg-based ArcelorMittal, which dominates supply in the U.S. and Europe and sold $11.6 billion of metal to the industry in 2016. Even as aluminum cut into the company’s market share over the past decade, the auto business provided support as demand and prices tumbled for steel used by the construction industry.
That is why ArcelorMittal spends most of its $134 million annual product-development budget on auto research. The company also has embedded 35 engineers with their biggest auto customers to avoid surprises like the Ford F-150 defection and to develop stronger steels that can compete directly with aluminum. It has already paid some dividends. The company says it can make steel car frames and panels that weight about 311 kilograms, 21% lighter than in 2010. While those components still weigh about 20% more than aluminum, it has cut the gap in half. Audi AG, whose Audi A8 was the first mass-market car to use primarily aluminum in its frame and body in 1994, next year will boost the amount of steel used in the sedan’s frames to more than 40% from 8% currently.
As innovations in steel products helps win back some buyers, the growing market for electric vehicles presents a new opportunity. Each one relies on a huge battery weighing hundreds of kilograms and running along the bottom of the car, which puts a premium on strong, low-cost materials. Electric vehicles are only about 2% of car sales now, but may be more than half globally by 2040, according to analysts at Bloomberg New Energy Finance. Aluminum producers say car makers are unlikely to reverse the trend toward lighter vehicles, even when they expand output of electric cars. The metal will remain in favor as a way of coping with the weight of new features like computers and electronics that can limit the traveling range of batteries, said Ganesh Paneer, chair of the Aluminum Association Inc.’s Aluminum Transportation Group. While steel producers have narrowed their weight gap, the aluminum industry also is innovating products specifically for automakers, Paneer said, and cars of the future will contain both metals. This year, ArcelorMittal will unveil its first products specifically for electric vehicles, with alloys and designs that make steel stronger and harder to puncture than before.
The economics of making the cars also may work in steel’s favor. Over the past decade, aluminum won market share in higher-end vehicles because it was easier for automakers to preserve their profit margins while using a more expensive material. That’s more difficult for lower-end models, where cost matters more. “If you can use a less expensive body part, such as steel, this could offset some of the cost pressures we’re seeing in items like batteries,” said Seth Rosenfeld, an analyst at Jefferies International in London. “Steel’s structural cost advantage should keep the material in a very competitive position going forward.” For example, Tesla had been using more aluminum in its earlier models priced from $80,000 to $100,000 each. But last year, the company used steel frames for the first time when it introduced the $35,000 Model 3.
Still, ArcelorMittal engineers want to get back into high-end vehicles by pitching their upgraded steel products and designs to automakers like Tesla, which is planning to start selling a roadster by 2020 that would be the fastest production car ever made. “It’s the most challenging time for materials,” said Ludkovsky, the steelmaker’s research chief. “We need to take as much weight as we can to help combustion vehicles. There is a relentless pursuit of this. In parallel, we need to define the future requirements of electric vehicles.”
Citations
- https://bloom.bg/2mH4nBA – Bloomberg
- http://on.wsj.com/2gKg34h – Wall Street Journal
The Good News Is . . .
- Holiday sales jumped 5.5% compared with last year, marking the largest jump seen since the end of the Great Recession, the National Retail Federation reported. Total sales for November and December were $691.9 billion, exceeding the industry trade group’s forecast of between $678.75 billion and $682 billion, which would have been an increase of between 3.6% and 4%. Over the holidays, the strongest performers were building materials and supply stores (8.1% growth), furniture (7.5% growth) and electronics (6.7% growth). Clothing/accessories and health/personal care were up 2.7% and 2.2%, respectively.
- UnitedHealth Group Inc., a healthcare coverage network and benefit services provider, reported earnings of $2.59 per share, an increase of 22.8% over year-earlier earnings of $2.11 per share. The firm’s earnings topped the consensus estimate of analysts by $0.08. The company reported revenues of $52.1 billion, an increase of 9.7%. Management cited broad based growth in all of its business segments, and improved operating performance as reasons for its strong revenue and earnings results.
- Kering, the owner of high-fashion labels such as Gucci, Saint Laurent and Alexander McQueen, is getting out of the sports lifestyle business. The French conglomerate said it would spin off the German sports brand Puma to its shareholders, the final move in a series of deals brokered by Kering as part of its transformation into a pure luxury player. The move is a signal of Kering’s belief in the health of the highest-end of the consumer market. The group said that it planned to distribute 70% of Puma shares in kind to existing Kering investors, out of the 86% it currently owns. Kering has divested most of its non-luxury assets, such as French retail brand Printemps and the catalog label La Redoute, and narrowed its focus to increasing market share in the fast-growing, high-margin world of global luxury.
Citations
- http://bit.ly/2ATPOzH – National Retail Federation
- http://cnb.cx/2lwnm3s – CNBC
- http://bit.ly/2DkMvaB – UnitedHealth Group, Inc.
- http://nyti.ms/2mHhDWP – NY Times Dealbook
Planning Tips
Guide to Comparing Traditional and Roth IRAs
There are dramatic differences between traditional and Roth individual retirement accounts. And what you do not understand about the particular rules that apply to them can cost you. Below are some of the key differences between these two retirement accounts that you need to understand. Be sure to consult with your financial advisor to determine the best type of retirement account for your situation.
Pre-tax vs. post-tax funding – With traditional IRAs, you get a tax deduction up front. The taxes you pay on that money are delayed until you withdraw it in retirement. Roth IRAs, on the other hand, are funded with post-tax money. With a traditional IRA, you are at the mercy or uncertainty of what future higher tax rates might do to your retirement savings. With a Roth IRA, you do not have to worry about future rates, because your tax rate in retirement will be zero.
Income and age limits – Contributions to traditional IRAs do not have income limits for savers who contribute to these kinds of accounts (though high earners may not get the upfront tax break). Roth IRA contributions, however, do have income limits, but for most individuals they are relatively high. For 2018, the income phase-out range is $120,000 to $135,000 for singles and $189,000 to $199,000 for married couples who file jointly. The rules for traditional IRAs prevent you from making contributions once you turn 70½. But the same does not apply to Roth IRAs. You can continue to contribute to those accounts at any age if you have the earned income wages or self-employment income to do so.
Plan participation – Your participation in a retirement plan generally does not affect either traditional or Roth IRA accounts. It is important to note, however, that with a traditional IRA, you may not be eligible for the deduction depending on your income.
Required minimum distributions – The rules around required minimum distributions mark the biggest difference between traditional and Roth IRAs. With traditional IRAs, you are forced to take distributions starting at age 70½. Roth IRAs are not subject to required minimum distribution rules.
Money withdrawals – If you withdraw from a traditional IRA before retirement, you will pay tax on that money. Plus, if you are under 59½, you generally will be subject to an additional penalty. Roth IRAs, on the other hand, can be withdrawn from at any time for any reason, penalty free. The key is that those withdrawals have to be the money you contributed, not funds from IRA conversions or earnings on your investment.
Citations
- http://cnnmon.ie/1aH8rJv – CNN Money
- http://bit.ly/2ESLhQl – Investopedia
- http://cnb.cx/2ERHnr4 – CNBC
- https://nerd.me/2gaH7eq – Nerd Wallet
- http://bit.ly/2e9b3XD – Fidelity.com
