Broker’s Report, August 14––The Mammoth real estate market continues to influenced by three factors: foreclosures, very low interest rates, and the “what to do with my cash” syndrome. While the present economic environment has clearly brought some to ruin or impending ruin, the other half is looking for opportunities to acquire, upgrade, or simply improve what they have. And most are looking for more time to enjoy what they already have.
The foreclosure side of the market continues to plug along and have strong influence on the market, if not the market mindset. The stress is found in all segments of the market, from dinky condos to pricey Bluff’s homes, from foolish cash-out refi’s to highly leveraged peak-of-the-market purchases to multi-million dollar “spec” homes. The lenders continue to process defaults at a ridiculously slow pace and price their REOs, at least at the start, at unmotivated appearing prices. Asset managers juggling hundreds of files in far-away places can only get a snippet of what the local market is even about. They rely on the appraiser hired to do the lender’s appraisal, the opinions of (mostly neophyte) local agents who are grinding out BPOs (broker price opinions) at $50-100 a pop to put food on the table, and the advice of their local listing agent. Sometimes the dartboard is the only explanation for the initial asking price. But you can be guaranteed the price will come down if the property is not sold. And I haven’t met a buyer yet in this market who doesn’t want “a deal,” and the concept of “a deal” has become very subjective, and sometimes delusional. One component of the foreclosure market I am seeing is the increased pursuit of deficiency judgments. The banks are getting off their butts and going after the foreclosed-upon and short sellers. Some people who think they “escaped” are in for rude awakenings.
Meanwhile, people with cash and credit (yes, they do exist) are trying to figure out how best to utilize their good fortune. Mortgage interest rates are low and with money pouring into the safe haven of 10-year notes (and the printing press), one can only imagine rates will stay that way or even go lower. The primary lenders remain Bank of America and Wells Fargo with the other major banks coming back to resort lending ever so slowly. And yes, buyers do have to qualify and 25% down has become the minimum norm. Many buyers, regardless of purchase price, are going straight to the $417,000 (conforming) loan amount for easier qualifying and the best rates. Mammoth is still seeing a significant percentage of all-cash buyers, and many of those buyers are intending to put even more cash into remodeling, improvements, furnishings, and toys. And mortgage bankers are reporting abnormally high rates of cash-in refinances.
The Westin Monache Follies continue. (I just love the definition of Follies in this context: a theatrical revue, typically with glamorous female performers.) The best entertainment in the Mammoth real estate market this year may be the upcoming auction, yes I said auction, of a portion of the balance of unsold units. In the span of five years we’ve gone from the lavish spectacle of a Westin presale “launch” to a minimum bid auction (I wonder if they’ll be mixing alcohol with the Kool Aid?). Too bad it’s not a no reserve auction–––that would be even more entertaining. Instead, expect a recessionary version of the infamous Intrawest launch. Too bad they can’t bring back the original sales team….uh, but that looks like who will be pitching the wares, at least for the most part. I hope they have bullet-proof vests. Apparently, one of the sales strategies is to attempt to sell original buyers (the ones who haven’t been foreclosed on) another unit to “even-out” their loses. This makes perfect sense to me. How do these people sleep at night? For those P.T Barnum fans, the auction is scheduled for Monday, September 13 at the Westin South Coast Plaza. There is no financing available, so cash buyers only. It is a minimum bid auction. The Studio units start at $129,000, the 1-bedroom units at $149,000, and the 2-bedroom units at $279,000. The entertainment will come to see if people get so excited by all the Intrawest sales magic that they actually overpay for the units––that is pay more than the current offerings in the Mammoth MLS including REOs and short sales. Based on the current interest level, it looks like hundreds of folks plan to bid on the 18 available units. I won’t be there, but I congratulate the winning bidders beforehand.
Based on the comments on this blog, more and more astute financial types are reading here. I’m truly flattered and impressed. But some of these anonymous commentors are confused. Mammoth is not an investment market, at least not an investment that can be measured by mathematics. Anybody looking for rates-of-return or cash-on-cash blah-blah-blah, are displaying their ignorance of the market. It never has been, and never will be, a traditional investment marketplace. And as I’ve said before, once you watch a few friends die, those hard investment numbers look less important (and I hear it all the time). About five years ago I remember a man who had just bought a shopping center in Mammoth boasting about how the property was under-valued because the rents were too low. He implied the local businesses had “sweetheart leases.” I bit my tongue, but my “blink” on his comment has already come to pass. Anybody in the market for a foreclosed shopping center? He would have been better off buying in Mojave. I hope for his sake it wasn’t a recourse loan.
So get over it. Mammoth is a second home market. If you’re looking for a measurable return on your P&L, there are plenty of places to look. Mammoth isn’t one of them. Yes, many want to rent their second home to offset some expenses. But these aren’t income properties first. Even with today’s reduced values, owners who take the income-first position better be very good at producing the income (best done on the Internet) or expect plenty of frustration. And sorry-to-say values have nothing to do with local incomes either––we live on an island. The only mathematical equation that really matters is 10,000 improved properties in Mammoth as a numerator and the denominator of 20 million or so households that live within a six or seven hour drive that desire to, or have the capacity to, own a second home in Mammoth. Run that through your calculator, it’s an interesting number. There’s plenty of affluence remaining in that 20 million. Successful (and now expanding) air service only makes the denominator larger.
So here we are. The critical Mammoth selling season is about to begin. As I often say, it is all about the anticipation of winter––the kids back to school, football games, ski and snowboard magazines in the mail, and a change in the weather. The inventory has increased since spring but the total numbers are seasonally normal and certainly not excessive. We should see a small inventory increase before Labor Day, the traditional peak in this market. There is no showing of any extreme stress in the market, but there are motivated sellers. The early buyers cruising through right now are thinking they can crush prices. They have the classic lines, “We’ll wait until 2011 when prices are lower” or “I’ll wait until after the election.” Okay, call me when you’re ready. Meanwhile, they watch the inventory on the Internet more closely than I watch the fish reports and sea surface temperatures. I do see more disappointment ahead for sellers AND buyers, but that is the tug-of-war between buyers and sellers in a “don’t-have-to-sell, don’t-have-to-buy” market like Mammoth. And trust me, I really wish there was more quality inventory for sale. I spend countless hours of time educating buyers about the market, and usually it takes considerable time (especially in the field) before potential buyers come to realize that there is no “perfect” property for them, especially not at $200,000. And if it is a quality property and priced right, it doesn’t last on the market very long. Plenty of other buyers have become educated, and frustrated. The other thing, the Internet distorts real estate. Nobody can really know the market by sitting at a laptop. You have to “stand in it.”
So why don’t I send Christmas cards? Well, real estate is a funny business. There is a whole side of the industry geared to almost gaudy agent marketing, from refrigerator magnets to recipe postcards to God-only-knows. And social media like Facebook, etc. is all the rage and the fastest way to now guarantee success in the business. Do buyers really choose the person to represent them in a major financial decision because they advertise on the shopping carts at VONS? I hope not. So no Christmas cards or shopping carts for me. I prefer to offer my clients, friends and readers the opportunity to come here as their time allows. I work hard to keep you all informed in a concise and straightforward manner. And I thank all of you for reading here.
Now don’t call me until after the 24th, I’m going fishing and plan to rest-up before the pre-winter sales push.