Broker’s Report, September 19, 2006

September 19, 2006–Finally, a new Broker’s Report. I’ve tried to keep the market information updated in my recent Q & A’s, but I’ve had too many inquiries about a new Report, so here goes. The current Mammoth real estate market, from the research I have done, is much like many of the real estate markets on the west coast, and very different in other respects. Call it in limbo, a stalemate, a standoff, or stagnant, it is what it is. (For me it is probably time to go fishing.) In the past month we have seen a slight up-tick in business, but that is to be expected based on what time of year it is.

The first subject of discussion is pricing. The sale of the Ski Area last fall and through the winter created a rush of property buying in Mammoth. Many new sellers priced properties with 5 to 30% premiums following this period thinking the market would support these new prices. In the same period interest rates were on the rise. Today we are seeing more realistic pricing and price reductions by sellers who are serious. There’s the rub in Mammoth. There doesn’t appear to be many “serious” sellers. Unlike highly speculative markets with great over supply, Mammoth’s inventory volume remains moderate, and low by mid-90’s standards. The non-serious sellers have absurd prices on properties, and some are such substandard properties the situation is downright ridiculous. Pricing founded on the extrapolated hysteria of the Ski Area sale has simply become delusional.

One of the problems I see on a daily basis is the masses of new real estate agents in Mammoth who have never experienced anything but the “good-ship-lollypop” market (to quote one of the owners of a local escrow company.) Those agents simply don’t know how to have a frank discussion about market conditions and what the buyer’s mindset is. Either that or they are in denial that the market is not continuing to escalate. Serious sellers have to reduce their expectations and prices, or find a renter (more on that later.) I have recently fielded many inquiries from sellers who are thinking of selling. They “don’t have to sell” and they are asking me to predict where the market will be in six months. Conveniently, this time frame is after the winter rental season, the period when most have good cash flow, and heading into what is normally our slowest selling season. I have no idea if we’ll have more buyers, lower interest rates, more listings, etc. in six or twelve months. But one thing I do know is that during that period the owner will have carrying costs, and those with high carrying costs should consider price reductions.

The wildcard is the impact of development announcements and public relations from Mammoth Mountain and whoever the new development company is. In the past I have referred to these as “trigger events.” So far the new owners (Starwood Capital, etc.) have been quiet, suspiciously quiet to many. Rumors always start in Mammoth, and the rumors have been good. The one thing I do know is that their lack of communication is helping to kill any momentum in the real estate market–and they have bet tens of millions on keeping that momentum alive. If they don’t have a nice public relations campaign ready to roll out with some “grand vision”, the anticipated profits from condo/hotel development may be chewed up by the time value of money. And after two huge winters a marginal snow season is always possible. Throw in a potential decline in consumer spending, and… So that’s all a big stay tuned. Or maybe they just want to go fishing like me. Oh, and by-the-way, the big improvement on Mammoth Mountain this year is a new (another) PVC tent at Chair 15. At least now those who are dining and cocktailing won’t have to smell the stench of rental boots.

Okay, what’s the good out of all of this? The underlying fundamentals of Mammoth real estate remain. Sometimes I feel like I’m beating a dead horse, but it is even important for me to remind myself. Scarcity and proximity aren’t going to change. Environmentalists, conservationists, and bureaucrats will assure the scarcity of privately owned land and development potential in the Eastern Sierra and especially Mammoth. (Has anybody noticed how people are talking about the new “precious” commodity–fresh water?) And as the world gets only crazier, the isolation of Mammoth, yet the proximity to the great metropolis below, will only create more demand. The temperate climate will continue to attract, especially the aging baby boomers. Bottom line–people want to be here and people NEED to be here. The fundamentals remain, and maybe bigger than ever. As long as there’s enough gas to make the drive.

What’s really happening in the market? The buyers that are here are typically making aggressive offers on good properties. Some are going together and some are not. As I have recently said, most buyers and sellers aren’t really compelled to meet on price. The properties that are selling are; quality homes under $1 million, condos with views or great locations, and a handful of properties that are decorated to the hilt. What’s not selling are substandard properties (or poorly presented properties), grossly overpriced properties, and from what I can tell, fractional offerings. The high-end residential is flat as can be. Even though construction of new high-end custom homes continues at a solid pace. And the high-end homes built on speculation are just sitting–no price reductions, no incentives, nothing. Talk about staying power! The most recent Intrawest built condos that were bought on speculation are sitting too, but those owners appear to have substantial staying power too. Residential lots sales are flat. Some believe the Town’s new permit/impact fees has a lot to do with that.

The latest sellers I’ve been dealing with are selling because of old age, major job changes/locations, and move-up. As for inventory, we are sitting today at around 220 condos on the market and about 80 homes, with a handfull of those in the to-be-built status. Overall, most of the market is presently valued at about the same as it was in the summer of 2004.

Other thoughts and observations; seasonal winter rentals in the 6-8 months range are bringing large rents. The demand for winter-only rentals by highly qualified and quality tenants is impressive. (Maybe many of those are fence-sitting buyers just waiting to see where the market goes.) Snowcreek Phase V is a large, modern project and has always been very popular. Due to some mold remediation and potential (or existing) litigation in both Associations, values have declined a bit and units have been a little trickier to transact. Those might be very good buys in the long run. Many of the other “big” developments that were charging forward appear stalled, at least for now. I don’t think anyone has a clear idea about the airport, and if they do, they’re not talking.

The best projects going seem to be public projects–the Main Street fire station and the new library located on Meridian Blvd. in the school district. And it looks like the Lake Mary Road (essentially from the Chair 15 bridge to Horseshoe Lake) reconstruction is finally happening. The work is scheduled over the next two summers and will include a bike lane. It will be great to see that completed.

I’ll finish with a quote from Bill Gates, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”

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