Mammoth Broker’s Report–Where Fools Don’t Rush In

Broker’s Report, Nov. 12––Snow anxiety fills the air here in Mammoth. For many it is the anticipation of cold air rushing past their face while hearing the crunch of fresh snow under their bases. For others it is financial: will the winter provide the necessary cash flow to service mounting debt? The anxiety for some is a question of readiness. Contractors, property managers, even the Town itself, can be caught by early and/or heavy dumps of snow and freezing temperatures. For many in the real estate business, the anxiety can be finding (and closing) a property for an anxious buyer who wants to own before the holidays, or before the holiday rental period. (Outsiders really don’t understand. It truly is a BIG deal for some.)

While the pre-holiday period can bring closure to many real estate transactions in Mammoth, it can also mark the beginning of a slow period too. Potential buyers and sellers have different reasons for becoming disinterested. Both can certainly become preoccupied and distracted by holiday focus and festivities. Or maybe it is just the short days. Besides the holiday distractions, buyers can become frustrated by the diminished inventory. Sellers, especially those with condos on rental programs, anticipate good upcoming rental income and just back off. Some sellers just don’t want people tromping through their properties with snow, and boots, etc. And after the holidays there is what I refer to as “the post-holiday decompression.” Typically the local real estate business doesn’t pick-up until mid-March or later. And there won’t be any Intrawest based sales “launches” to jack the market––they’ve deeply discounted and resorted to dumping their remaining inventory. The take-away: sincere buyers may want to pay attention during this doldrums period. Isn’t good luck defined as timing meeting preparation?

Foreclosures remain the most attractive buys, and the next few months may be the opportunity time. Last year the foreclosure/REO industry took a breather during the holidays, we’ll see this year. But my thinking about opportunity is founded on where the inventory is standing, and what the market is saying. Usually I try to wrap-up these Reports up with a discussion about inventory. This time it really is the significant market condition, and anyways, I have no hype to report about such-and-such development or some new delusional planning scheme. But we do have increasing air service. For us Mammoth residents, we may be considering a trip to Portland or Seattle just for fun.

So what is the inventory saying? We only have 170 condos on the market. That is a low number whether looking from seasonal or historical perspective. And 10 percent of those are Westin units––and Westin units are selling. Another substantial percentage is properties with list prices that buyers know are just unrealistic. Many have been on the market for eons. Those high list prices just cause disinterest with the majority of buyers and agents. (That is unless you’re willing to do some homework and negotiate intelligently.) The craziest segment of the entire market is condos under $500K. Sort through the overpriced and less-than-desirable inventory and there isn’t much left. Even the decent REOs that come to the market in this price range get jumped on with some potential buyers leaving the negotiations flustered. Even the dirt-cheap REOs sell. Maybe not immediately, but after 30-60 days on the market and adequate price reductions, there they go.

What we’re also seeing in the condo market are sellers willing to take loses, not short sellers, not foreclosures, just sellers looking to get out. And these sellers can afford to. They might be carrying paper (a recent Westin seller) or they may be willing to put cash into the closing to pay off the loan (and they’re not calling it a short sale). This is reminiscent of the early 90’s. And then we’re seeing the short sellers. Whether most of these short sales are good buys for most buyers is still questionable. But they’ll be in their new place for the holidays. And what if the buyers have to pay cash for the furniture? But more and more short sales are closing. Most sellers are making concessions to the banks to make the transaction happen. I was recently reviewing the closing file of a short sale. The way I read the short sale agreement between the bank and the seller (I’m not an attorney), the lender retains the right to recover the shortfall, forever, and ever. When there is tens of thousands of dollars (or more) in shortfall, forever is a long time for the bank to come sniffing for the deficiency. I just wonder how many of these short sellers are reading the paperwork. Of course, they probably didn’t read their loan documents at purchase time either.

The single-family market is quite interesting too. After three or four high-end foreclosures/REOs sold for very attractive prices, buyers looking for the same type of deal are coming out of the woodwork. We’ll see how many more of these high-end bargains there are to come. There are at least a few in the pipeline that I know of. But these properties were built for speculation and the speculation failed. There are only a dozen or so properties in the whole town that would fit into this mold. But there certainly could be shadow inventory lying around, especially in the Bluffs and Starwood. The good news (notice how popular that saying has become in the Great Recession) is that there are actually people anxious to drop two million dollars of cash into our middle-class ski town. Trust me, I’ve talked to many of them on the phone and they are ready, willing, and able. The inventory just isn’t there. But they need to pay attention if they want the opportunity.

The low-end of the single-family market is quite telling too. There are only six homes listed under $600K and just another five between $600-700K. Most of these would sell if the pricing were attractive to potential buyers. (The Internet has made most serious buyers very market savvy.) There have also been notable sales in the low $1M range––newer homes with plenty of footage and garage––with sellers selling at a loss but able to sell without negotiating with banks. Jumbo loan rates are coming back to reality, the only caveat is that buyers have to qualify (who knew?). Investors looking to park cash have also been scooping up a variety of single-family lots, with some attractive buys still lingering in the market.

Lately, one of the greatest confusions about the Mammoth real estate inventory stems from the way the public views the data exchange between the Mammoth MLS and the various Internet sites owned by local Realtors. The interface is not perfect, and many properties that are under contract and in escrow show as available. The reason: the property can be under contract but marked in the “active-backup” status by the listing agent. The “active-backup” status simply means the property is under contract but the seller will consider taking backup offers. If the transaction is a short sale, most lenders require it to be represented that way. Many agents don’t move the status of the property to “pending” (when the public would no longer see it as available) until all of the contingencies are removed, or sometimes not until it is actually closed escrow. Properties under contract can linger for months looking like they are still available on someone’s website when in fact they aren’t. I get calls from people all the time thinking properties are still available, and “oh, that just closed escrow.” What-you-see is not always what-is-still-for-sale.

The multi-family residential market (apartments) becomes more entertaining all the time. The ignoring of basic fundamentals by buyers (I refuse to call them investors), banks and even the Town of Mammoth Lakes is playing havoc. Several apartment complexes are now in the later stages of foreclosure with more to come. The Town’s Housing Authority continues to unload the byproduct of their own housing mania––the overzealous development of deed-restricted housing. I remember arguing with proponents and I was always told, “we can never have enough affordable (deed restricted) housing.” Okay, I was wrong again. The newly un-restricted San Joaquin Villas properties ended up selling well (mostly to bargain hunting second homeowners) and now they’re trying to offload the newly un-restricted Aspen Village units. These are very different properties that will end up with very different results. Meanwhile, market rents continue to decline as vacancies and supply are up, making it even worse for those who bought while ignoring the fundamentals. And even worse to be competing against government subsidized developments.

The REO business continues to bring absurdities. Just this last week we have a foreclosed condo owner trying to buy back their old unit. The bank may go along with it just to avoid the threats from a local attorney. And in actuality it’s really their parents trying to buy it (back). I’m trying to figure out what to tell the condo association about the $24,000 in back fees they owe them. I’m sure the association will welcome them back with open arms. And what about the rents they generated after the bank took ownership? And forget that it appears they may have defrauded the lender in the first place. The weasels are getting more weasely all the time. When did enabling irresponsibility become so fashionable?

This winter’s visitors will notice some visual improvements to town: the old Blondie’s building (which was foreclosed on) is gone for good––only dirt there now. The Clearwater/Mammoth Place property developer has new clarity and the old Rafters building is getting improvements (new roof, windows, etc.) and will open as an Italian restaurant. The Sierra Nevada Inn has been spruced up and their monument sign now looks like Grateful Dead memorabilia (dancing bears). AND they’ve put in a miniature golf course! Can’t wait to see how that works in winter. The old real estate office (the one that promised to put me out of business when they moved in) next door to me on Old Mammoth Road is being nicely upgraded into a new community bank building (that was the bank that foreclosed on the property). And also I can’t wait to see all the new tenants in the Village. I hope the leases are right for them this time around––no need to go through this again. Now we just need snow!

7 thoughts on “Mammoth Broker’s Report–Where Fools Don’t Rush In”

  1. Thanks for the post. Always very interesting! Like the line, "There are actually people anxious to drop two million dollars of cash into our middle-class ski town." Although I don't have 2m, I understand those with cash from So Cal who would–we drive our five hours north and when we finally see the Mammoth exit sign, we sigh deeply. We feel we're at home. Mammoth soothes our tired city souls.

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  2. *And also I can’t wait to see all the new tenants in the Village. I hope the leases are right for them this time around––no need to go through this again.*

    From what i heard from a owner in the village the tenants won the fight beating the 500lb gorilla (Intrawest/CNL) and have great new leases, thus the reason for the quick fill up of vacancy with 95% leased up and set to open by X-mas, very good news to a village that has struggled the last few years!

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  3. Hey Paul- how is the value of an apartment building not based on what you can get in rent?

    If rents aren't rising why should the value rise?

    And shouldn't we be able to accurately calculate values on apartments, and heck, commercial for that matter?

    The next question is how overvalued are these properties now and how far do they have to go?

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  4. Income properties–apartments, commercial, etc., are ALWAYS valued as functions of rents. That's where many lost their way in the past decade. They applied the appreciation in the residential and condo market to income properties while rents didn't increase at the same rate. I think the buyers of the upcoming bank owned income properties are a more shrewd bunch. They'll set the prices.

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