Mammoth Broker’s Report–Is Sideline Cash Getting Antsy?

Broker’s Report, July 30––I find it fascinating to correlate what is happening in the national and global financial markets to what is happening in the Mammoth real estate market. Years ago we relied on an early-printed edition of the LA Times and the nightly news on television for our outside-of-Mammoth information. Boy does that seem archaic. And decades of observation here in Mammoth shows that everything has to be considered in seasonal context. Understanding the ebb and flow of people is critical to business success.

So the stock market is rallying, new home sales are up, and the pundits are calling the bottom. But most are recognizing we’re likely in for a long, slow recovery marred by whatever flation we’re going to have, ugly unemployment stats, and other unpleasantries. So what is causing this market rally? Is it the same reason that people are plunking down cash to purchase properties in Mammoth? Some of this is really serious cash in the million-dollar plus range. With financing in the toilet right now it is not uncommon for condo buyers to pay cash in the $200-400K range for their new Mammoth condo. It all seems to me that the people who have cash are getting antsy to get it invested some place. Well, it’s not really my imagination, I’ve been told that directly. Is there a correlation to the stock market––pent up demand to place cash into some sort of investment?

So what is really happening in the local market? First, understand this is typically an ebb period for Mammoth real estate. In case you haven’t looked at the temperature outside, it’s hot. It’s even hot here in Mammoth, which means very nice. But most people aren’t thinking of skiing. The market doesn’t normally see demand until there is the “anticipation of winter,” triggered by the kids back in school, football games to attend and watch on TV, and the ski and snowboard magazines arriving in the mail. And for many, the arrival of a long-ago-paid-for new ski pass (the real number is purported to be around 40,000 here at Mammoth). So to see cash buyers and general interest in real estate is quite encouraging. Now if we only had financing for half the properties in town.

Inventory remains stable. Oddly, the condo inventory is on the low side, especially if you scrub out all the Westin and Woodwinds properties (Intrawest has put everything they have left on sale at deep discount much to the chagrin of all their past “preferred” customers). And there are still plenty of short sale offerings tempting buyers to join the dance. Conversely, the single-family home inventory is a bit on the high side, with plenty of unrealistic sellers still in the bunch, and an assortment of short sale offerings, a few REOs, and a concentration of 11 homes listed just in Starwood (there’s only 54 lots in the whole subdivision). Oh, and there’s small-but-increasing number of Notice of Defaults in the single-family pipeline. Some of these are what would be considered “trophy homes.”

The lending restrictions imposed by Fannie Mae continue to be a major headache (see my last post). Condo hotel units and regular old condominium projects that have “front desk” reservation companies are not meeting project approval guidelines by the underwriters. Right now half the projects in Mammoth are not lendable. Okay, Guido can get you a loan but you won’t like the terms. Local mortgage folks and some out-of-area brokers are trying to solve the problem one or two projects at a time. It is a case-by-case situation for buyers (and sellers) and rejection can come at the last minute. Meanwhile, acquiring financing for single-family and other projects without visible rental programs appears to be no problem. Snowcreek properties, for instance, aren’t a problem right now. But there is a major rental entity on the grounds with the Snowcreek name. Let’s hope the underwriters don’t Google down too far. And the lack of financing is obviously not helping sellers and their values.

The Westin Monache continues to be an intriguing case study. Don’t get me wrong, the place is nice, really nice, and very popular. It is clearly the nicest place to stay in Mammoth if a luxury hotel experience is what you’re looking for. If the prices go much lower I will consider buying a unit there for my retirement years. And the values are heading there. The first foreclosure happened there last week and there are more in the pipeline. The developer has reduced prices to move their inventory (and there’s plenty of it). Non short sale Studio units are now price at or below $200,000. Short sale listings abound. And there’s no financing, except from Guido. I hope they can keep it all together.

The infamous Clearwater project (Old Mammoth Road/Sierra Nevada Inn) is history. It now has a new architect and a new name––Old Mammoth Place. The new plan has been well received by the public officials but I still contend it is way out of place. And just what we need; more condo hotel units and more retail space. But there is an ice skating rink. I’ve seen so many projects with ice skating rinks in the original plans only to have them evaporate come construction time. Has anyone ever tried to think through this capacity argument that I’ve been making for years? Everybody who knows me knows I was a major skeptic about the Tallus and 80/50 projects long before shovels went into the ground. I was told I “better get on board before the train leaves the station.” I guess I’m still at the station. I laughed at local real estate agents who were making deposits and reservations in these projects as speculative “investments.” But, what the hell do I know? What really pisses me off is here’s a guy with a boatload of money and what appears to be real sincerity about the community who wants to be a developer and he got sent down such a lousy path. The ironic thing is I watched it all happen right out my office window and couldn’t do a thing about it.

Okay, let me address a couple of questions posed in the comments section of my last blog post. First, the issue of property tax reductions. I can’t speak for the Assessor’s office, but I get to watch closely. The Assessor has been very transparent about this process with articles in the newspapers and public presentations. There is huge pile of work being done. But the reduced assessments can’t simply and immediately drop to recent comparable sales. First, all appraisal work is historical. On the way up they are lower than sales. On the way down they are higher than current sales. In the daily practice of real estate brokerage we contended with this during Goldilocks and we’re contending with it now––just different problems. Also, the other lag is the tax year calendar (starts July 1) and when the “roll value” is established. All of this creates a downward stair-stepped lag in assessments. You can always appeal. But property tax law in California is a big body of law and good luck if you can find anybody who understands it all.

The other issue is price support in the Village. There are only nine units listed for sale in the Village out of hundreds of units. And a couple of them are short sale offerings. At the current prices these would likely be sold if financing were available. The statement about price support was a reflection of dealing with a number of bank-owned properties in the Village in the last 6-8 months and seeing buyers compete over them. Yes, values are down and down below the sales of 2003-06. But which values aren’t down? Mine are. The key is there are cash buyers at certain prices. We’re working on one right now with multiple offers (so really there’s only eight on the market). I consider that price support. Without this kind of price support maybe you should just mail the keys to the lender. Recent studies are showing that many defaults and foreclosures are simply people with negative equity, who can actually make the payments, just throwing the towel in. I don’t know what is confusing about this level of price support, it’s a good thing for current owners. At least the developer isn’t still holding dozens of unsold new units. We are also seeing price support in low-end of the single-family market. Recent sales of decent homes in the $500-600K range would substantiate that. The listings below that range are pretty substandard and/or short sales.

The months heading towards winter shall be telling for the Mammoth real estate market. How many new pass holders will be looking for crash pads? How much antsy cash will come off the sidelines looking for good buys in Mammoth? Will the default pace slow or quicken? Will the lending quagmire begin to resolve itself? And maybe most important for all those invested, or want to be invested, in Mammoth; will the owners of Mammoth Mountain give us some positive sign other than an announcement of additional air service as to their commitment to their enterprise here? Too many news stories about major layoffs, serious over indebtedness, and giving property back to banks, doesn’t exude confidence. Of course, this is California, what did you expect? And people are starting to buy it up again.

20 thoughts on “Mammoth Broker’s Report–Is Sideline Cash Getting Antsy?”

  1. Every investment has risks and drawbacks. The important thing is to recognize them, to be aware of what can happen to your investments, and to make sure you aren't exposed to risks you can't afford.

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  2. What about hoa's? I live in an area of so cal with only primary residences and I'm seeing many homes in arrears with their CAF or HOA fees. I can only imagine in an area of mostly second homes, like Mammoth, there are far more. Where can I go to learn the health of an association before I make an offer?

    HOA/ Common area fees seem high in Mammoth vs other ski resort towns too. Why?

    It's the $600-$900 monthly HOA's, associations with questionable financial health, and the threat of special assessments that keep me away.

    Thanks for your great opinions Paul. It's probably a sensitive topic to discuss specifically.

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  3. When we were in Mammoth last August, we looked at what was available at the Westin. This was 11 months ago, at that time the lowest priced studio was $395K, I still have the print out from the MLS.

    Now, there is 1 for $190K and 2 for $199K. Ouch, that's some serious crash and burn.

    The thing is we would have easily been sold a unit back then with the line "it's looking like a good time to buy" from one of the several people who make commission on the deal.

    Just my 2 cents.

    PS – I enjoy the blog, good info, seems to tell it like it is.

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  4. nice to go online in the AM and see a paul post (from so far away); thx 4 doing it.

    until there's (condo) financing, there's no "bottom" is there?

    maybe that has something to do with the 50%+ (11 month;!) drop in list price the poster above talks about.

    no rush, right?

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  5. Paul, great posts as usual. However, the situation is much worse than what everyone is saying. First, banks are not lending. Second, people are not buying because writing on the wall says days of flippin' are a goner.

    That leaves current buyers holding the check (they bought high!) that they are trying to pass on to the next sucker. Tough luck on that one!

    Easily, it will go down another 20-30% before the year is over.

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  6. I would love to hear your opinion on homes sold last week for about 30-40% below asking. And the asking price was down about 25-30% from a year ago. Is it true?

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  7. Not seeing those kinds of statistics. Remember though, "asking price" can often be "wishing price" and not what the listing agent advised or what the market will bear. Remember too that every seller has the best property on the market.

    In the last two weeks there has been six residential (single family) closing.

    16 Cliff Circle, bank owned 3/1.75, listed at $344,900, sold for $344,900 cash, 35 days on market, (days on market includes the time in escrow).
    11 Rainbow Lane, 3/2 log cabin, listed at $525,000, sold for $500,000 w/new loan, 88 days on market.
    115 Carter, 3/2.5 w/garage, originally listed at $699,000, down to $599,000, sold for $545,000 w/new loan, 292 days on market.
    247 Tamarack, 4/3 w/2 car garage, originally listed at $735,000, reduced to $699,000, sold for $669,000 w/ new loan, 63 days on market. (This property had been on and off the market for a couple of years.)
    170 Holiday Vista, 4/3.5 w/ 2 car garage, listed at $990,000, sold for $889,000 cash, 150 days on market.
    66 Badger, 4/3.5/den w 2 car garage, originally listed at $2,300,000, sold for $1,145,000 cash, 761 days on market

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  8. Well talk about price support, here's a clear example in the low end of the single-family home market. This closing just came through: a 2 bedroom loft / 1.5 bath A-frame built in 1966 selling for $390,000. Financed conventionally and not a short sale or foreclosed property.

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  9. So here comes Barry Sternlight back to Wall Street today raised 810m in the biggest IPO of 2009 to buy "distressed commercial properties"!

    Just as he gave all the land he bought in Mammoth back to Credit Suisse, from his private equity fund, watch him buy it all back with other peoples money for pennies on the dollar with this new fund.

    Stock symbol is STWD

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  10. Thanks for the informative posts Paul. I've been keeping track of Mammoth real estate for some time now and I plan on buying at some point in the future, but will only do so if it makes financial sense. Examples of "price support" don't tell me it's a good time to buy. After all, a price that's supported today may not be supported tomorrow…

    Remember last summer that $149K one bedroom condo that "probably could have been sold 25 times" sold as fast as it did? (http://mammoth-real-estate.blogspot.com/2008/06/brokers-report-june-16-2008.html) Now I'm seeing several condos on the Mammoth Lakes MLS at around this price point just sitting around. I also seem to remember last summer that there where no 3 bedroom houses under $500K. Now there are several, including a couple under $400 K. I can only imagine what next summer will bring.

    If people are getting antsy to get their cash invested someplace, why would it make more sense to invest it in real estate, which is still trending down (and will for the foreseeable future), rather than in the stock market, which you noted as "rallying"? I just don't get it. Are people still speculating in real estate?

    The pundits are calling the bottom? Not all are (www.patrick.net). Last summer you stated "Smart People Are Buying Now!!" (http://mammoth-real-estate.blogspot.com/2008/08/i-want-my-screaming-deal.html) to which I commented "Smart people may be buying now, but even smarter people are waiting. I think the smart money says wait a year or two, then jump on a "screamin' deal"." Hmmm… I think I'll correct myself and say the smart money says wait yet another year or two. Renting in the short term and then buying will be far more costing effective than buying now and taking a huge depreciation hit. Mammoth real estate still has a long way to go…

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  11. Oh, Mountain Guy, you're cracking me up on what has been a busy month, weekend, day…looking for bullish real estate news on patrick.net is like trying to get Nancy Pelosi to praise the Bush family.

    Without a good filter there's lots of distortions out there, that's what I'm trying to be. "Smart People Are Buying Now!!" was the ad campaign of one of my competitors in the past year–not my hype. I don't know if they're smart BUT people with ski passes are already buying right now. And I don't think they're speculating. Those homes under $400K aren't fit for your dog and most are short sales to boot. There are a few $500Kish homes coming on the REO side. That $149K one bedroom condo last summer was an UPSTAIRS unit with a loft. There are three condos under $150K (one REO just sold for cash) and one is a REO and the other is a short sale. When looking at the low end of the inventory it is important to discern what is a short sale offering–big distortion in the market.

    I'm working on a new post but things are getting in the way.

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  12. Wow… thanks for the fast response Paul… You gave me a good chuckle to boot… Cracking people up is what I do… I always thought asking a real estate agent if today is a good day to buy a house is like asking a car salesman if today is a good day to buy a car… lol…

    There was an interesting thread on the Mammoth Mountain forums on this topic a while back (http://forums.mammothmountain.com/viewtopic.php?f=14&t=2323)… It seemed that the lack of logic in purchasing a $576,000 condo because they got a $576 pass was the theme.

    BTW, were those same $400K houses unfit for your dog running around $500K last year? I do consider myself a student of real estate as I do read up on it quite a bit and follow values over time. Quite frankly, I think this is a fascinating study in real values (from a buyers perspective) and perceived values (from a sellers perspective) over the course of the real estate boom/bust.

    I do look forward to your each and every post with eager anticipation… BTW what things could possibly get in the way of your next post? Fishing? You had a busy month doing what? More fishing? Mountain biking? All kidding aside… keep up the good work, and thanks for the blog…

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  13. I agree with mountain guy. Prices of condos in Mammoth are set to fall much further. People who bought in Mammoth a year ago can not be considered the smart money. They are going to be the worst off, of any buyer in the last 6 years. Here is why, and why it is worse to buy now. If you were a speculator…the ones who bought multiple places 4 years ago, you could have put 0 down and refinaced to take 120 percent financing, then when prices drop 50% as they did, you just stop paying your morgage and rent it out for $1100 a month until the overwelmed banks take it back, could take a year and a half, that's another free $19000 in your pocket on top of the equity you pulled out, and all you lose is your credit score. If you bought a year ago, you had to put more down, maybe 20%, now that prices have dropped 25% in the last year, you are out your money and you got nothing for it. Plus your neighbor isn't paying his dues, so yours are going up, and he is just collecting rent letting it fall apart. So the real buyer or new buyer is getting hit the hardest. Prices will drop another 25% over the next two years atleast, and the original flipper who played the system will come in and buy the once $320k two bedroom for 70k cash, while the guy who bought it for 230K is 90k underwater with a big morgage in a real bad job market for the next 7 years. The only winner seems to be the one that was most irresponsible during the peak.

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  14. Is side line cash getting Antsy?

    If your cherry picking the very few marginal location/condition cherries from financial pits, in the under $320k ski crash pad inventory, sideline $ may be getting itchy.

    If you think Mammoth values are going south for another 12-18 months minimum, you are itchy Gold Bond cream protected because quality location/condition condos and $1.5+M homes are over priced and sitting in la la land.

    Chadamr and Intrawest are sitting on significant, aging iventory that has not been price reduced in relation to pre-owned properties. Even if you credit these developers for not underminging recent buyers values, these major developers are only delaying market reality.

    Short sales suffer from owner denial/pain and REO's go to buyers with cash and no contingencies, but these buyers are savy and do not buy properties with location/condition challenges.

    Again, I say, Mammoth is back to HWY 395 economy and a 1970s shopping/eating experience that eliminates high end SoCal customers.

    If you have a brain, you buy Mammoth today because you can afford to carry property and want your own place in Mammoth.

    Itchy money is $ that sees a "speculation" opportunity or sees an unusual opportunity to own your own ski crash pad.

    If you are a careful, smart, uner $370 ski crash pad buyer, you may be itchy. All others are brain dead or do not understand that 2010 is going down.

    If you cherry pick, and love Mammoth for its most basic values, the itch may get you doing your homework to pull the trigger within 12 months.

    IMHO, Mammoth 1968

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  15. NO cash on sidelines is getting antsy and PAIN has just begun folks. Higher end of the RE market is starting to see severe pains and 2010 will be worse yet. I can only shake my head as most people seem to be oblivious of how bad it is going to get.

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  16. I am not a doom and gloomer saying the market is never comming back, but I do think we are still heading into the darkest part of forest.

    The credit card and commercial realestate banking crash have not yet peaked and shown their full impact.

    California's state and municipal financial crisis has yet to be fully felt and dealt with by the government and by the public.

    The terrifying unemploymnet problem is no where near rebounding to the point of generating confidence for consumer spending.

    I think we have a way to go before big problems and unknowns are dealt with and confidence returns.

    MM1968

    Reply
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