Real Estate Q&A––Double-Dip or Long, Strange Trip?

This Q&A appears in this weekend’s Fourth of July issue of The Sheet. The winter/spring precipitation and recent lovely weather have made the Mammoth area and the Sierra simply gorgeous and it is certainly an epic year for wildflowers. Many have asked how the fishing was…..June once again provided outlandish fishing, caught dozens of sharks and numerous birds, but between them managed some real trophies. Kind of like working in real estate.

Q: It’s mid-year 2010 so what are the significant dynamics you are seeing in the Mammoth real estate market?

A: Early summer can bring the real estate doldrums here in Mammoth. The transactions of spring are wrapped up or getting close to completion. Potential sellers are preparing their properties for the late summer and fall selling season. And with a little good weather and a few hours of free time the golf course, trout stream, or mountainbike are there for distraction. But the market has underlying currents and they will undoubtedly play out in the second half of 2010.

Government paranoia, or the uncertainty of changes in government rules and regulations in an attempt to “fix” the world is indeed a wildcard, and certainly on investor’s minds. The continued government tinkering, or at least the threat of change, affects many plans and has people sitting on their hands and/or scratching their heads. Sweeping changes like financial reform and cap-and-trade make people nervous. Some Mammoth property owners are looking at the likelihood of higher capital gains taxes in 2011 and beyond and are considering trying to sell before the end of the year. For some, the difference could be substantial. And yes, there really are owners here that still have equity and potential gains. Mammoth is full of property owners who make real estate decisions based on tax ramifications. Others are pondering possible changes that may impact ownership of second homes and income properties. And these possible changes impact the decision to buy, sell, or do nothing. In my 25 year in real estate here in Mammoth I can’t recall a more uncertain or confusing time in this realm. The November elections may give some clarity, but don’t count on it.

Meanwhile, those who still do have money lying around become more and more clueless as to what to do with it, and it’s not because they’re stupid. Everyone I talk to expresses their distaste for low returns, manipulated markets, or the sense that they are simply gambling. So buying a place in Mammoth, especially at these perceived discounts, has, or may become, a lesser of evils. At least the perceived return on investment is memorable ski days, quality family time, or some simple escape from the rat race. And for those with some money AND credit, interest rates are ridiculously low so jumping into a fixed rate loan is very appealing. And most observers still believe some inflation is destined, so in the long run the hedge will play out okay. But we are reminded more and more of the quote from one famous economist, “in the long run we shall all be dead.”

The sleeping bear of the local real estate market remains distressed properties (and their owners) and namely foreclosures. The excitement and hype of short sales is waning but remains. Some short sales are working, many are not, and frustration is rampant. Some are owner-occupied properties where there really is hardship. Others are second homes or investment properties where there is a case for hardship or willingness to negotiate with the bank (with most of the parties making compromises). Many times there are professional third-party facilitators involved. And some buyers still automatically think all short sales are good deals.

But short sales aside, the real momentum is that the shadow inventory of foreclosures is beginning to come out of the shadows. The numbers still aren’t huge but they are building. By now, no one should doubt the existence of the shadow inventory. Whether it warrants a movie by Michael Moore (or did he do one already on this?), or whether it is a real conspiracy, I have no idea. The whole mortgage industry pipeline is so jammed full of non-payers there is no way to keep up with it all. If there really are conspirators, they’ve done their best at setting a bottom in the market. And they’ve successfully delayed booking their losses and keeping shareholders fooled. And likely, a friend or relative has benefited financially from some spin of a new government program or mandate. What a country.

But the shadows are finally filling with sunlight and the disinfecting process is gaining. I’m thinking we’ll see foreclosures here in Mammoth into 2013 and beyond. The “good news” in the Mammoth market is we have buyers for these properties, even the worst ones. For those looking outside of Mammoth proper, there are nice opportunities in both June Lake and Crowley Lake. And the Bishop market (I’m no expert) probably has the highest demand of all. The foreclosures we list in Bishop and Big Pine are a solid commodity, a clear example of limited supply.

The third factor keeping a lid on the Mammoth market are buyers expecting a double-dip recession or some other trigger of greater stress on the real estate market. Nobody is expecting a “V” shape recovery and a short-term escalation in values. There is a whole group of local market watchers who believe there will be better opportunities. But as the industry learned in the 80’s and 90’s, many of those watchers really aren’t buyers anyway, just good old-fashion “bored-and-lonely” types.

What I can defer to is some looking back. Right now the market values in Mammoth are similar to 2002 and 2003, and we appear to be holding. The numbers aren’t exactly perfect and there are variations in the different segments of the market. The important historical movement in the market was from 1997 to 2002. The appreciation that happened from 2002 to 2007 was the result of easy credit (and mania) that is now the real cause of all the stress. In 1997 there was a convergence of several factors. First, Mammoth had been seriously, and arguably artificially, depressed for almost 15 years. Hardly anyone talks about earthquakes, volcanoes, and drought anymore. It was desperation time (and it was great time to start a career in real estate). But 1997 was our first introduction to the vision of Intrawest. We also had a recovering California economy. But with fresh development in town and on the Mountain and hyperbolic marketing, real estate values recovered quickly.

If we look back to 2002, we now have many new great amenities and services today that we didn’t have then: far better accommodations, air service, etc., and even today’s Village for all the bashing is far better then what was there. The public amenities, public transportation, roads, trails, snow removal, etc., are superior to the past. All of these things enhance the real estate values in a resort town. And they were badly needed. So the way I see it the market corrected upward by 2001-2002 and between 2007 and 2010 it corrected back downward. I think economists call it regression to the mean. But the double-dip crowd is thinking 1997 is the mean. So far the market isn’t showing it. There is strong demand at ’01-02 values. We’ll see if that holds through the end of the year.

Happy Independence Day!

 

3 thoughts on “Real Estate Q&A––Double-Dip or Long, Strange Trip?”

  1. Dang interesting article.

    We shall see where the market turns. I watch Bishop pretty closely. It seems to me that there is still a ways to go to get back down to 2002 prices.

    Bishop is artificially inflated because of the lack of land for development.

    As a former carpenter, I walk into a "$300,000" house and I'm usually disgusted. For $200,000 it might be worth putting time and money into the place. Problem is, there aren't any $200,000 houses.

    If I put time and money into a $300,000 place, I might be able to sell it for $315,000. This market is screwy I tell you.

    Reply
  2. Nice article!

    Market still has long way to go. Didn't you say last year that we have hit the bottom? I think we will be lucky if it stops at 1997 levels. Here in cali, we have 15% unemployment and wage pressure. Real selling will start when people are not looking for gains, but to avoid losses.

    Reply
  3. The continued government tinkering, or at least the threat of change, affects many plans and has people sitting on their hands and/or scratching their heads. Sweeping changes like financial reform and cap-and-trade make people nervous.

    Reply

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