Mammoth Broker’s Report–Is that a bird? A plane? No it’s…

Broker’s Report, August 28––Longtime readers here know I’m more realistic than hyperbolic and I fall back on my decades-ago journalism training to report rather than distort. With that said I’ve been writing a post for the last three weeks that isn’t close to being finished but this post is now more important. One of the reasons the post hasn’t been finished is because I’ve been busy––out in the field with buyers and in the office putting out fires. It is a little early for a Broker’s Report but the market has shifted gears and I feel this information is noteworthy. And I’m going to write this fast.

There is no doubt that the local real estate market has changed in the last two weeks. The level of interest, property showings, and transactions moving to escrow has increased dramatically. This is a level of activity we haven’t seen for probably three years. The market segment I’m most impressed with is the low-end homes, those in the $500k to $700K range. This segment has drifted in the past 18-24 months and is now experiencing significant demand. Buyers are making offers, searching for the seller’s bottom line, and heading to contract. In the next few months it will be interesting to see if this activity moves up the line to the $700K to $1M range. And man, there are some old dogs in that price range–––I was just showing them.

Bank owned properties that have sat for months are now experiencing multiple offer situations with some buyers losing out and disappointed. We just scratch our heads and wonder, “where were these people two months ago?” Accusations of wrong doing by the losers are the norm. No pal, the asset manager made the decision, you just thought you could steal this property and somebody out-bid you. Speaking of asset managers, we know they are very busy but the new tendency is to take longer to respond to offers and during that delay more offers come in–––it’s working in their favor right now. Well, maybe. Meanwhile there is a steady ebb-and-flow stream in the foreclosure pipeline. And with a potential end of the owner-occupied moratorium on Sept. 15 we’ll see if the hammer finally drops on the multitude of them that have been delayed. And we’re finally seeing some $1M-3M homes getting foreclosed on. They will ultimately sell well below replacement value and there’s plenty of buyer interest.

Another area of change is short sales. The lenders are obviously becoming more favorable to short sales in this resort market place. We’ve seen a number of them actually closing in the last month. It is still a transaction filled with uncertainty for all parties. Some are joking that short sales are really long sales. But I’m not necessarily seeing any buyers getting any screaming deals. I’m still holding the line that buyers should be seeking quality and not the lowest price, but that doesn’t get you bragging rights at the bar, or on the chairlift, so I’ll just keep that to myself. There are two dynamics at play here: if the market continues to see activity and experiences an eventual firming up, will buyers want to engage into a short sale that is potentially lengthy and uncertain while other good properties come and go on the market? And will motivated sellers finally realize that a short sale may be no better than a foreclosure for their credit, tax return (especially in the State of California), and self esteem and not bother with the process? I have counseled my agents to steer clear of giving any advice to owners/sellers about the value of a short sale versus foreclosure. Only time will truly tell. But people in that situation shouldn’t be relying on the advice of a real estate agent.

The low end of the condo market is almost void of quality properties, and we’re just hitting September. I was expecting a rush for crashpads, after all there are 40,000 season pass holders and they’re not staying at my house. So has the rush already happened? I don’t think so. The fire sale prices at the Westin Monache are looking better all of the time. The higher end quality townhome product—The Timbers, Lodges, Juniper Crest, etc. in the $800-900K range are moving and there are an impressive number of cash buyers. Many of these properties were selling for an additional half million dollars or more just a few years ago. Only a handful of similar properties appear in the REO pipeline. Snowcreek has been a popular target for buyers: older townhomes (mostly 3 bedroom + loft units) on the riparian corridor (rare fabulous settings) in the older phases and well priced 3 bedroom/3 bath/1 car garage townhomes in Phase 5. With plenty of supply, those Phase 5 units may remain good buys for a while. Just get me a shuttle bus out there.

Unlike the earlier years of this decade, today’s buyers don’t appear concerned (or even interested) in Mammoth’s future as a chic resort. They rally for the return of the Yodler (maybe even the Rafters). They appreciate the improvements on Hwy. 395. They hope they can make it up the beautiful new bike path into the Lakes Basin. They would like to see the Village functioning like a Village and they would love a Trader Joes but they are more interested in what is already here rather than what is proposed or promised. And Mammoth real estate is on sale at discount in their minds. The new winter flight options to Reno, San Jose, Portland and Seattle are very interesting indeed. But with Alaska Airlines in charge it seems natural. I think Mammoth locals will be spending more time in Mexico. It should be a very interesting winter.

Where were they five years ago? The pendulum has swung. Now the Feds seem to have their noses in everything, from how appraisals are ordered (nobody is served there), to what condos Fannie Mae will approve/lend on or not, to policies set for bank owned properties. Guaranteed, things will just get more screwed up. I have warned my associates that the only thing to expect is the unexpected. I have now warned you–––an even better reason to work with the right real estate agent.

Recent assessments of the resort and tourism business have shown a clear decline but have also shown the prosperity in drive-to resorts (just when we’re finally getting air service in place!). So Mammoth’s often-thought drawback has once again become an asset (just like the altitude will be in global warming).

So let the naysayers have their day and their say, but the real estate market in Mammoth has pushed to an almost bizarre level of activity. And we’re just beginning (on the calendar) the traditional fall selling season. Pray for snow. Well, not yet. Now back to work.

15 thoughts on “Mammoth Broker’s Report–Is that a bird? A plane? No it’s…”

  1. Interesting Paul…I can concur that in my own little patch of the world things appear to be on the mend. However….I’m skeptical and to use your title “Is that a bird or a plane?” let me explain why. In my opinion, the current up tick in various market indices may prove to be much like an airplane that has temporarily leveled off after losing power. Indulge me as I dive into this silly analogy (or is it a metaphor??…no, I think it’s an analogy…you read and decide).

    Anyway…the jet lost power (i.e. world/national economies) and stalled. Being well trained pilots (Bernanke/Geithner) they purposely point the nose down and dump gas in order to lighten the load and trade altitude for airspeed (i.e. print money and increase debt) in an effort to give them time to restart the engines and if nothing else glide the plane to a safe landing.

    Meanwhile, in the back of the plane those passengers that know a little bit about aviation get concerned when the cabin becomes strangely quiet (i.e. liquidity markets seize) and soon everyone notices the commotion as people start to look out the windows (i.e. people are glued to the news/radio and it becomes the prominent topic around the BBQ). Sure enough they see the houses really are getting bigger (i.e. neighbor looses job or can’t refinance or their own portfolio is in the tank).

    Luckily, just before all hell breaks loose in back (social unrest), the pilots look at their gauges (economic data) and feel they have enough airspeed to break the stall so they pull back on the yoke just a smidge to slow the rate of decent (which is where we are now in that the good news is that only the rate of decline is slowing).

    Next the pilots get on the mike (news conference) and calm the passengers with some half truths like…”ladies and gentlemen we have stabilized the airplane and are coordinating decent to land” (i.e. “pundits and white house suggesting the worst is behind us). Of course the terrified passengers are relieved and are further encouraged when they too sense in the seat of their pants that the freefall has lessoned (i.e. home sales have increased and the stock market has rallied).

    So the passengers settle down and believe that everything is indeed ok. However, while the passengers are all congratulating themselves (msn/cnn) the pilots are behind the bolted cabin door frantically trying to restart the engines (job creation). After all, they know that otherwise the dreaded decent will again accelerate and this time they no longer have altitude to trade for airspeed (i.e. death of the dollar and colossal debt).

    Bottom line…not before I see employment figures on a clear and supported march back into the green will I even think about unfastening my seatbelt.

    Wilbur

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  2. Probably a lot of pent up demand on the sidelines. When markets tank, people freeze up and sit on the sidelines. Once the gears start to turn then is a rush of people who were sitting on the sides. See stocks and RE. I don't think it is a change in the fundamentals. Interest rates are going up sooner or later and that has to have some effect on prices.

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  3. cool.

    close those suckers and make as much money as you can as fast as you can.

    but, in the longer term, what about this recent news:

    "More than 500,000 "option ARM" mortgages are scheduled to reset in the next four years, posing a looming threat to the U.S. housing recovery"

    at some point, we may have another leg down.

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  4. I have been watching the mammoth market closely for 3 years with cash on the sideline. I have been talking to Paul a few times over the past year and recently came up for a product tour.

    I cannot speak for the other buyers in the market now, but for me it is less that I am now a serious buyer and more the fact that pricing has become realistic on some properties (probably all those that are in escrow now). It's Econ 101 supply-demand-pricing. I argue that the demand has been fairly constant for the past year and that pricing has simply dropped towards the intersection of the supply/demand lines. The result: SALES, CLOSINGS, SUCCESS!

    So congratulations to sellers and agents that are priced to market. Paul has been preaching this in many earlier posts, but it is plainly obvious that a basic 2+2 condo priced at $600k was always a fantasy, but in the $200k's – bam! it sells.

    I cringe when I hear people say "the REO's are killing our values" . Maybe arguable in some oversupply markets, but not in Mammoth. Thank you to the banks for getting us to an equilibrium! Now I can get my place in mammoth, agents can have a business again, and sellers can know the real value of their property – very helpful for sellers to make the hold/walk decision on their loan.

    Don't confuse these new transactions as an indication that prices are rising. It is more a validation that everything will sell at some price and those successful transactions found it.

    For the owners (not sellers) who are bummed that their condos are not worth what they thought; nothing will stabilize your property value more than getting the default units turned over to real owners that pay their HOA dues and assessments!

    Thanks Paul for the post.

    Glen

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  5. I so apprecieate Paul's blogs AND the few intellignet,thoughtful posts that Paul's ideas stimulate.

    Thanks Paul and Glen for such quality analyisis.

    MM1968

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  6. So, what you are saying is that no sane lender will finance the purchase of a Mammoth property and you are looking for and finding customers that have cash and are willing to buy even though the deals make no financial sense?

    I am curious if any of these buyers bother to look over the financial statements of the associations or fundamentals of the deals they are making?

    Clearly the jig is up for the "condos" that are really hotel rooms being sold at 2x to 5x of their real value (based on cash flow and expenses).

    I'm amazed at the naivity of buyers and the fact that real estate agents that are representing buyers don't do any due diligence for their customers, but allow them to be fed to the wolves.

    The old condo units should be selling at $100 per sq foot or less and the modern units are worth about $200 per sq ft if they have decent construction.

    It's amazing to see units still priced at $500 to $1000 per sq ft with crappy construction, high association fees, big taxes, huge liabilities, and no possibility of positive cash flow on the rental program for about the next 50 years.

    Keep looking for those all cash buyers that cannot read financial statements.

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  7. I'm sure that many of the cash buyers have jumped in because they really want to own a place in Mammoth, not because it makes sense from an investment perspective. Objective financial calculations only worked for flippers during the upswing.

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  8. "Objective financial calculations only worked for flippers during the upswing."

    The banks will not loan money for a mortgage if the financial calculations do not work out.

    If a conventional lender will not give you money for a mortgage, this should be a red flag for any purchaser that there is something seriously wrong with their real estate purchase.

    In the case where only cash buyers can purchase real estate, it is a clear message that a foolish decision is being made. The banks are essentially saying: "If you want to waste your money and take crazy risks, do it with your money, not ours."

    Real estate is always an investment. And as such has risks and potential rewards. The ongoing costs of maintaining the property/taxes/fees are not trivial. Therefore, real estate purchases always need careful financial consideration. You are buying an illiquid investment.

    The issue is not about flippers, it is about foolish and greedy corporations and buyers now having to face the burden of their decisions.

    The fact that there are cash buyers out there willing to pay inflated prices for bad deals is a great situation for the sellers and the real estate agents/brokers.

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  9. You’re joking right!?!?!?!!? Otherwise you’re giving banks waaaaaayyy too much credit (pardon the pun). Think about it…after all their monumental blunders how in the world can you suggest that a bank’s lending criteria is anywhere close to being a credible source to measure the validity of any investment??? Honestly…they are goobers of the first order. Wilbur

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  10. In the previous 8 years the banks were operating with other people's money via credit default swaps. They were also offering loans that were not subject to conventional lending standards.

    These conventional lending standards have returned.

    By way of history, some of these lenders used a two tier approach where long term reasonable rates were offered to borrowers with conventional financing, good credit scores and normal appraisals. The second tier was at much higher interest rates (higher bank profits), no rate locks, little documentation, and questionable appraisals. This second tier is gone now leaving only the normal conventional borrowers.

    The condo/hotel room deals do not pass the sniff test for a conventional lender unless the borrower wants to put down all or mostly cash.

    I agree that the banks and mortgage companies acted in a reckless and irresponsible manner based on their mistaken belief that they could transfer the excessive risk to others at a reasonable cost. Unfortunately for all of us, they were wrong and their misjudgement allowed the market to go wild.

    This all stems from a brilliant move by Intrawest to sell their hotel room units at vastly inflated prices (multiples), cut up their properties so that they could keep the always profitable services, insulate themselves from liability, and gain the funding for their projects by tapping the irresponsible lending environent of the last 8 years.

    I give a lot of credit to Intrawest and their business judgement, marketing, and packaging. They created a scenario where they were able to cash out at incredible profit levels with an inferior product.

    Their strategy of transferring the liability to "condo" owners (short term stay hotel rooms) was brilliant. I would have never guessed there were so many people who could get financing for such poor deals. Impressive and sad at the same time.

    Mammoth is a great place to rent a room or suite and enjoy skiing the mountain without the headache or cost of ownership.

    There are few (if any) upsides to buying a condo or house in Mammoth unless you have tons of money that does not mean anything to you and you want to make sure there is always a room available for you. On the other hand, even in this last scenario, someone has to manage your unit to make it ready for you…so what is the difference?

    In my opinion, unless you have a lot of extra cash for the initial purchase and ongoing expenses, it does not make any sense to buy there now. On the other hand, if it is about impressing your friends and collegues, then that is a different story. Economics and rationality don't come into play where greed rules the roost.

    Intrawest did a great job tapping into the natural human veins of greed, and envy. A lot of people went along for the ride.

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  11. Simply stated, considering the time value of money, pending inflation, all time lows with regard to mortgage rates & a market that is somewhere around 45% from the top. I put my money where my mouth is and I am now an owner and no longer a renter in Mammoth Lakes.

    Time will prove how close I purchased to the current “bottom” but either way those who got in 6 or 7 years ago are well ahead of me and have enjoyed their properties for all of those years. I’m not a speculator but a homeowner.

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  12. I bought in the Village in Feb with a conventional loan and not only am I making money but I am able to enjoy a wonderful condo and also provide a great experience for my guests. Its always a good time to buy if you can actually afford to.

    Reply

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