What now, Homer?

This was written about ten days ago for the upcoming issue (July 2006) of Mammoth Real Estate Times which will hit the street next week. But on the heels of the CNBC special What Now for real estate I though it was appropriate to go ahead and post.

Q: All of the hoopla of the Mountain selling and blah, blah, blah, is over and interest rates are climbing and real estate markets in California and Nevada seem to be softening but I can’t tell what is happening here in Mammoth. For me, I want to know are there going to good buying opportunities in Mammoth in the near future?

A: Unfortunately my crystal ball is overflowing like Mammoth Creek and clarity is difficult. The degree to which the real estate bubble will burst is certainly market specific, and Mammoth is indeed a unique market. But that doesn’t mean things can’t happen here. Those of us that have been around to remember the trials and tribulations of the 80’s and 90’s are a bit more jaded. But will there be good buying opportunities? Let’s see where we stand.

As many of you know I am a strong advocate of watching the available inventory as the best indicator of the current market conditions. The housing inventory in many markets across the country has skyrocketed in the past few months. Mammoth had a relatively slow spring selling season and is now seeing the typical seasonal increase in inventory. The peak of the cycle in inventory has traditionally been around Labor Day. So far, as of this writing, the inventory numbers are rising only moderately. And when I look at the current inventory I don’t see many good buying opportunities. Most sellers are listing their properties with very high prices, extrapolated beyond the prices of last fall’s frenzy. Buyers are looking but few are biting.

I think the buyers are waiting to see if some sellers get motivated. But when will the sellers become motivated? Maybe the summer doldrums of no rental income, for some maybe the reality of upwardly adjusting loan payments, maybe higher gas prices? Right now I’m not seeing many motivated sellers. Buyers are waiting–thus we have a stalemate. There just doesn’t seem like any compelling reason to buy right now. I don’t see anything on the horizon that is going to make this market pop into another buying frenzy. Also, except for a very few select properties, the speculative opportunities are gone from the pre-sale market. The performance of speculation bought units in the Cabins, the Village, Solstice (we’re watching), and others are clear examples.

In the investment world there is plenty of discussion about a “flight to quality.” I’ve talked about this before in our own local market. Those buyers that are buying are focusing on quality properties–and as they should. During frenzied times people seem to buy anything. Lately, the properties that are selling have great locations, views, and are typically in excellent and/or upgraded condition.

In the single-family home market we once again see plenty of new “starts” this spring and some amazing large custom homes are under construction. Some of these take 2 to 3 years or more to complete. But if you look at the scarcity of vacant lots, the ever-increasing cost of construction (how will gas prices and potential inflation effect that?), new and even higher permit costs, and even the higher cost of construction financing, one has to think that much of the existing home inventory is actually respectably priced. But the buyers in this market segment have a strong appetite for new homes and “their own thing”.

The high-end home market is almost dead from a resale standpoint. I think the affluent buyers who don’t want to go through the building process are sitting back, watching the macro and micro economic trends, and waiting to “see who is swimming naked when the tide goes out.”

The new fractional properties have been marketed to death but their developers don’t seem to be able to bring a finished product to the market. Intrawest were the geniuses at pre-selling everything and Snowcreek probably has good chance of pre-selling most of Phase 7, but by-and-large buyers are getting stale on being marketed and sold one thing and delivered another. While there are numerous fractional developments in the planning stage, I don’t see the real demand hitting until Mammoth has well-established regular air service, and that remains one of the great uncertainties of life in the Eastern Sierra.

MMSA CEO Rusty Gregory in a recent post-election quote said, “I think we’re going to see a period of no development.” The article stated that “he doesn’t see the market crashing, but he does see it slowing dramatically due to larger economic forces (interest rates, cost of land, cost of construction).” The way I’m seeing it, most of those larger economic forces are going to demand significantly higher sales prices in future developments in order to make them viable. Mammoth’s tourism and service industry, the cultural opportunities, and the access are going to have to improve significantly if that is going to happen. So is the quality of end real estate product. A few “wellness” seminars aren’t going to do it. But ultimately it is all a function of supply and demand.

The demand factors are getting fuzzy. We need to see just how strong this baby boom generation really is, or have many of them pissed their wealth away or are they going to work full-time for another ten years? And how bad will the need to escape the metropolitan areas of southern California get? That may be the biggest driver (and creator of demand) in the market. Escape alone may provide the wellness. And how might a change in the bigger economic picture impact overall tourism? And could we be due for a drought again? (How people who own a ski area can complain about too much snow is beyond me.) Demand is fickle.
Meanwhile, for those looking for a good buying opportunity, the Internet provides prospective buyers with the real time data of what is available for sale here in Mammoth. Combine that with the help of a good, experienced agent, and I can almost assure you a good opportunity will show. Happy summer!

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