Mammoth Real Estate Q&A — A Tale of Two Cities?

This Mammoth Real Estate Q&A appears in the Labor Day Weekend 2020 issue of The Sheet.

Q: Your most recent lockdown and post lockdown writings anticipated strong drive-to tourism and serious interest in Mammoth real estate. Both of these have come to reality. But how long do you think the strong demand in the local real estate market will remain? 

A: There has never been a more difficult or bizarre time to try to answer this type of question. And those of us who have been around for decades remember selling properties through strange times including bad and disrupted economic times, earthquake and volcano hyperbole, severe droughts, hantavirus scares, and all sorts of other instability. I guess we really were due for something even crazier.

The local real estate market is indeed very busy, and in all price ranges. The market data will clearly show it; from total inventory (low) to the number of properties in escrow (high). If there was more quality inventory available we would have more sales on the board. And the escrow companies, appraisers and inspectors are already taxed beyond reasonable capacity in our little resort town. But how long this demand will last is anybody’s guess. It may actually increase, especially if Mammoth Mountain can pull off a reasonable ski season. 

The local market is being strongly influenced by what I am referring to as “movement”. Many people are on the move, especially out of metropolitan areas. And many are also heading out of the State of California. U-Haul data is the clearest indicator of this. People who have contemplated moves in the past have been compelled to action. 

The work-from-home (WFH) trend is also creating movement: some want larger (second) homes — there are numerous move-up buyers currently in the Mammoth market. Some are clearly seeing Mammoth Lakes as one of the locations for the WFH experience. Others are being moved to retire earlier than expected and are moving towards their retirement location, including Mammoth. There are also a good number of 1031 tax-deferred exchanges happening so people area moving their assets to different locations. Part of the answer here depends on how long this movement trend lasts.

Meanwhile, today’s buyer profile in Mammoth is very strong, including many cash buyers. And the financed buyers are “actually qualifying” as one local loan officer recently stated. It isn’t the funny money of the mid-2000s. Most of the buyers I see have strong financial positions and aren’t looking to speculate. They intend to use their properties. In the current market the weaker, less committed buyers are getting nudged out by stronger buyers. This isn’t good for local residents looking to buy, but it is a condition of the market.

The economic pundits continue to state that “everything is being repriced.” But Mammoth’s repricing is going to depend on future demand, and new listings (supply). Up until a couple of weeks ago there was equilibrium between buyer demand and the listing inventory. But the total inventory of homes and condos is creeping lower despite new listings coming to the market. Many homes that have sat on the market for extended periods of marketing time (year+) have recently sold. And Labor Day weekend is historically the peak of inventory in the Mammoth market; the summer listing bulge meets the traditional pre-winter selling season. But 2020 is a complete anomaly, so only time will tell what the balance of the year and beyond will hold.

The sellers and listing side is a whole different story of movement and motivation. The property owners in Mammoth are being pounded with mail and other solicitation that now is a great time to sell. And it is. But owners and potential sellers are having lots of thoughts too. Some of the current sellers want to liquidate (and be liquid) or move their equity value to somewhere else. Some STR owners are nervous about the potential for future loss of rental revenue. Some sellers are fearful they may lose their job or their businesses may be in jeopardy. But others are becoming hesitant for different reasons. They might “need” the Mammoth property in the future and will hold on for now. Or maybe the WFH option now makes sense and they want to keep the property and spend more time here. And some are hedging that values may take a reasonable jump, and they should hold on. And some potential sellers still suffer from being “mentally upside-down.”  

And as my regular readers know, the Mammoth market is still not at the peak values of the mid-2000s (the Mono County Assessor says the peak was spring of 2006). This is quite unlike many (most) real estate markets in California. Just this last week an appraiser told me he could justify a 3 to 6 percent increase in values in just the past three months. But this still has most of Mammoth real estate at 60-80% of the values of 2006 (I can point to one of my recent transactions and it is 63%, and that isn’t considering ~15 years of inflation). There are still owners/potential sellers who can’t get past their upside-down position in Mammoth. They’ve been waiting for something to juice the market. And I have no doubt some believe this is it. Ultimately, supply may be constrained in the near future.

The real estate statistics and market participants can all attest to the incredible demand in the local real estate market. The Lake Tahoe region is experiencing similar demand. And all of it is rather counterintuitive while many are predicting a coming depression or even economic collapse. These are bizarre and unpredictable times indeed.

Whatever the “eventual economy” is for the nation, our State and even Mammoth Lakes, there will be winners and losers through all sections of the economy. And plenty of reinvention. One thing that now strikes me is the value of condo hotel properties for the Mammoth community. That’s a different thought. The market was forced to develop these lodging properties starting in the mid-1990s because true hotel development financing in mountain resort communities was non existent due to sub-par occupancy rates. Condo hotel properties spread the financing risk amongst all of the owners. But quite frankly, these properties have never had the chic of a true 4 or 5 star hotel.

Now that we’ve been through lockdown and the whole Covid experience, many hotels and hotel chains are in serious trouble. Many may close or head to bankruptcy. But the condo hotel properties here in Mammoth remain quite viable. They have been in near-full operation providing extensive guest lodging all summer. The individual owners who do nightly rentals may have already recouped what they lost through the lockdown. And the Fall is likely to be busier than normal. And we’ll see about winter. But the key is that they survived and have the chance to flourish. Far better than an empty, bankrupt hotel.

There are also STR owners, including condo hotel owners, who are making moves to sell (while others are buying). Some are too leveraged. Others have waning confidence in future revenue streams. Some simply want to move to other assets to other locations. But with the grandiose hotel development plans we’ve seen in the past 18 months likely to be on a long-term hold, condominium STRs are going to be the core of Mammoth’s lodging base (and tax base) for the foreseeable future. They should remain extremely viable as long as demand doesn’t totally disappear. 

And can demand disappear? Once again the population base of southern California is large and now the “drive-to” aspect is even more significant. And has anybody noticed how many Nevada license plates are in town this summer? These guests are coming from both southern and northern Nevada. And history has proven that people still come to ski in slower economic times. Or is this perhaps the solution to the overcrowded slopes of the past two seasons? And many current STR owners believe the rentals rates should be increased. They are increasingly thinking about quality over quantity.  

Historically, the Mammoth real estate market is also driven by a strong stock market. The current stock market is considered psychotic by many, but the fact remains that the indexes remain quite high. There continues to be money flowing from the stock market into Mammoth real estate. Some of it from liquidation of stock, some borrowed against portfolios. Regardless, the stock market remains one of the most, if not the most, preferred places to remain invested. Until it isn’t, it will continue to create demand in the local real estate market.

And what about mortgage delinquencies and potential foreclosures? Well, values are going up right now. Any owner under stress should be liquidating and getting out of the debt. This opportunity alone should minimize any future defaults. The Dodd-Frank laws of the past ten years were implemented to prevent a 2008-style crash from happening again. “People are actually qualifying.” But maybe even more profound, the State and Federal governments are already out ahead of this, especially legislatively here in California. They seem willing to do just about anything to keep owners from being foreclosed on. 

And what happens if the skiing is really good this winter? And maybe a little less crowded? Or not? Southern California skiers who have been jumping on airplanes to fly to other resorts may find a drive-to resort more attractive (and as I point out, “drive away” also — you aren’t stuck on some cruise ship). And they may re-discover how awesome the skiing is on Mammoth Mountain. And how the drive has improved in so many ways over the past decades. This could create more demand.

We really don’t know where this is going. But Mammoth seems uniquely positioned. And community priorities and values are changing too. Just a year ago nobody was thinking we needed fewer visitors and more trash patrols. But here we are. 

Mammoth has always been a place of extremes. And the past few months have been extreme in many ways. Let’s hope they push us in new and positive directions.

Happy Labor Day!

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