The View From The Finance Desk_2013

by Wendy on October 8, 2013

by Joseph McKinney of Oregon Roads

I’m excited to share the news that RV financing is back. Oregon Roads has had a steady stream of applications ahead of the spring sales surge. Why are we so busy? Low rates, long terms and relatively flexible credit policies.

I haven’t been this optimistic in years. Dealers’ inventories have been drawn down and now they’re stocking up in anticipation. Show and event attendance is up. Much like the automotive industry, deferred demand is giving way as consumers are choosing to wait no longer.

Forecasters often compare trends to see in which direction we’re headed. Some trends in the automotive industry mirror activity in the RV market. There’s also a connection between the housing market and trends in the RV industry.

Have you heard about the trends in housing recently? There’s not been enough new home construction to keep pace with demand. What does that mean to the manufacturers of traveling homes? Are the manufacturers hiring and building again? Are there enough new recreational products in the pipeline to meet demand?

The home resale market is gigantic in comparison to the new home market, and that’s true with RVs too. Many more pre-owned products are available for sale, just as in the housing market. I ask myself, what’s been in the news about the housing market, and what’s the trend as it relates to RVs?

The housing news headlines are focused on the increase in demand and price, especially as sales diminish the available stock of homes, leaving fewer choices and putting upward pressure on price. The focus is on the Las Vegas and Arizona markets, where home prices dropped harder and faster than the rest of the country. Today, Vegas and Phoenix are the hottest markets for re-sales. The result: there’s been a 23% increase in home prices in those two markets.

I see a parallel between those statistics and the RV market today. RVs dropped hard too – because of economic uncertainty, because of the losses to the banks that fueled RV financing and because of the decrease in vacation spending to be expected during a “Great Recession”. People were bottom fishing
and looking to “steal” properties in Phoenix just like they were trying to buy RVs at prematurely depreciated prices.

Today, just like the Phoenix housing market, the RV industry is rising again. Consumers who were once trapped in a product because their trade value went below their loan payoff are discovering that there’s strength and improvement in the “books” that chart the values of RVs. Just like the “comps” in the
Phoenix market have increased, so have the NADA and Kelley Blue Book values.

What other trends do I see that impact sales and financing activity in the RV business?
1 – Buyers are moving up, adding some cash to the equity that’s recently increased in their older RV and buying nicer, newer recreational homes. The upper end products that may have been out of reach when they purchased their last RV are now affordable. The combination of a lower price and lower interest rates means they can trade up without considerably increasing the monthly cost of ownership.
Two years ago there was demand for remodeling coaches. Owners figured they’d keep their old unit and freshen it with new upholstery, appliances and furnishings. This year buyers are getting newer upholstery by buying a newer coach instead of refreshing the old. I believe that’s driven by the advantages of financing today. Paying $50,000 to remodel the interior requires $50,000 in cash. Why not get a newer, lower mile RV with about the same monthly payment and just keep that $50,000 in your pocket?
Yes, our portfolios took a hit five years ago, but they’ve come rippin’ back these last two years. Many of us feel more secure today than we did right after the housing bubble burst and Shearson tanked, and that means we’re okay with making a move to a newer RV.

2 – Baby Boomers are the newest demographic who have embraced camping and the RV lifestyle. Many campers from that generation are in their first RV. They made their selection when the mobile lifestyle was still theoretical. Their tastes were simpler and they didn’t expect to be spending so much time in their RV. They’ve fallen in love with this lifestyle now, and find those simple tastes to be somewhat Spartan.
Now they can justify going with something bigger and better, knowing that they will be using it even more. They’re also taking advantage of the low rates available today, knowing that markets, including financial markets, go up and down, so they’re striking while the iron is hot.

3 – Folks who sold their RV’s years ago now regret the loss. They would like to travel again, so they’ve returned to the marketplace. I note that the new RV’s they are buying are often smaller than the last one they owned, but are more sophisticate and heavy on new technology. This is similar to the trend in real estate where retirees are downsizing their homes.
During the Great Recession we were all pessimists. The world was collapsing and some folks felt secure and fleet of foot in an RV. Some of my clients said they bought an RV for the generator, like New Yorkers did after the hurricane. An RV made them feel safe.
Now we’re optimists, our portfolios look better, markets have stabilized and there’s no good reason to stay home. It’s time to go out and live life. Living life on the road appeals to you, and you’re not staying home – you’re moving your home. Your friends cross your path and that makes you feel happy, connected and full of life.

For the last few years we’ve felt limited, our friends too. Why? Because of the limits of financing and the economic restraints placed on us all. Banks and various lenders restricted credit. They became risk intolerant. “They won’t be rolled again”.

But today rates are low and credit has once again loosened up. Rates are at historic lows now, not because of the industry but because of the economy. It’s a rare opportunity, granting advantages to the remaining qualified candidates for credit. If that’s you, and you have either the cash or trade equity to structure the deal to secure your lender, you will find yourself in the best spot in RV price and finance history.

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