This Q&A would have been timely for the February issue of Real Estate Times. But I would have missed the deadline anyway––too much skiing and snow to shovel. I think there’s more relevant information here than in that entire issue. So…
Q: When you say that you “scrub” the condo inventory, walk us through your mental process of doing this and the reasoning behind the scrubbing.
A: Years ago I remember waiting for Friday afternoon when the new MLS books came out––new listings and new information. Seems like the Stone Age. Things have certainly changed in the last couple of decades. Today I watch the MLS on my computer screen like a stockbroker watches the stock market––spotting new listings, volume, trends, etc.––the action in general. Luckily it doesn’t move too quickly so you can get in a few ski runs. And the rest of the interested world can watch along too thanks to the proliferation of the Internet and websites. My brain mainly processes what’s selling and what’s not. A new listing or a price reduction may compel further research, some discussion with fellow agents, a serious scratch of the head, and quite possibly a trip out into the field for a closer look. (Thank God I’m not forced to stay at my desk.)
The first number that my brain is watching is total number of condos currently listed. It fluctuates up and down a bit based on listings expiring and being renewed. Recently the number has been hovering around 280 to 290. The number seasonally peaks around Labor Day and usually bottoms in mid-winter. (If this is the bottom, we may have a ton of inventory by late summer.) Over the years I recall the condo inventory as low as 30 and as high as over 400. For a good decade, from about 1988 to 1998, the number sat around 335 (and there’s been hundreds and hundreds of condos built since then).
Condo listings come and go, some sell and some languish for years. Mammoth is greatly a “don’t have to buy, don’t have to sell” market. Many owners like to “fish”. Right now there are plenty of owners fishing. There are buyers in the market, but they’re buying at 20 to 30 percent off of the peak. Most of the posing sellers don’t want to sell at those prices. And many agents are now simply refusing to take listings at the higher prices. The standing inventory of unmotivated sellers is affecting the appearance of the market––long days-on-market and other unappealing market statistics don’t help matters. Best to just get this stuff out of the inventory. The only people it helps are the owners of real estate magazines and paid-per-hour webmasters.
So then it gets down to scrubbing. The goal in my mind is to have a dozen or so “tip-of-the tongue” best buys picked out. Good properties at good or reasonable prices, or maybe some inside information. And it’s important to have few “trophy” properties in mind. No lousy HOAs or substandard locations. No multiple cookie cutter competitors with stale pricing. These cherries are constantly changing because they are good buys and they don’t typically last. And some times they become good buys just based on a serious price reduction. And this time of year these may be difficult to even look at because they are heavily rented or snowed under.
Then the real scrubbing begins. Right now there is a large inventory of the “cookie cutters”––many are units built in the last few years and many bought on speculation. Frequent readers know I’m not enthused about the Village condo hotel units––too much supply, mediocre revenue, high costs, low utility, etc. (but your wife likes it!) And for clarification, I do condone investing near the Village, just not in the Village. (If you haven’t figured out why you need to read further into this blog’s content.) The Village will go through considerable pain, but it will recover. The sooner the better, but it will take at least 3 years or more, just depending on the level of obstinance. Other inventory in this scrub out includes The Lodges (Snowcreek 6), The Westin, Solstice and a few others.
If the prices come down these might be worth buying, but most were bought at peak pricing. We can pull about 100 +/– listings out of the inventory––like a big blob just sitting there. Some of these may end up in foreclosure, but most will just sit. Like I have reiterated before, when it comes to this class of units there is only a small percentage worth owning––ones with great locations within the project, views, sun, etc. In the condo hotel product the top floor is nice. (I recently noted a sale of a 2 bedroom in the Village, great price, but I sincerely hope the new owners are hard of hearing.)
Then my scrubbing mind goes to the “Why?” part of the inventory. Newbies can sell them but I can’t. Second homeownership should have positive connotations––great experiences and memories and anticipation of future ones. While no property is perfect, one of the goals is to minimize the nightmares. Spend some time with a conscious (or self conscious) Realtor and you know that scrubs out another 60 or 70 properties. Why? Poor locations (even though some of these units might be new), funky HOAs, long histories of defects and problems––the things your home inspector won’t find, etc. (I’ll still take a 40-year old Chateau Blanc unit over a great deal of the inventory.)
And now I get down to scrubbing on good properties that just aren’t priced to the market at this point in time. There’s nothing wrong with the property. The local agents (myself included) are, in the past couple of months, really beginning to take a stance on pricing. It is just market reality. The agents and owners have been programmed by years of increased pricing and even taking the risk of “leaving money on the table”. Those days are over. I see no “magic pill” announcements or legislative stimulus package (just more great skiing). The media and the lending environment (the return to traditional lending standards) have taken their toll. The good news is that there are still buyers interested in Mammoth. And they already have the bulk of the information to make their buying decisions. And they aren’t going to pay 2005 pricing for less than spectacular properties.
The problem is the inventory is swollen with properties that simply aren’t going to sell, at or near their currently listed price. We have proven that they will sell at something substantially less. The “don’t have to sell” owners who have their properties listed are doing the market a great disservice by bloating the inventory. The local agents and these sellers appear to be wising up. On the other hand, there are sellers hoping to sell at their price but can’t because their loan amounts exceed the current value. Some agents are marketing these as potential short sales. To make these short sales work in a second home/investment environment, something is going to have to give. Owners are going to have to put money into the transaction or the lenders are going to have change some historical policy. So far, I’m still a short sale skeptic in this market. The agents working these transactions may tire with frustration, especially for a reduced commission. The short sale buyer may conclude they aren’t getting a good enough deal.
So at the end of scrubbing the inventory, there remains a small, maybe less than 50, amount of condos to pay attention to. But the scrubbing is an almost constant. Oops, look at that, this new listing is priced to sell. Better go take a look. See ya!
8 thoughts on “Scrubbing The Condo Inventory”
“We may have a ton of inventory by late summer.”
There is a disturbing trend that seems to be duplicating itself with numbing predictability in a variety of communities down here in SoCal.
It goes like this…Rising Days on Market, followed by rising inventory, followed by short sales, followed by foreclosures, followed by a vapor lock in sales, followed by a dramatic gap down in pricing.
It started in outlying markets like Coachella, Lancaster and Adelanto and is moving towards the stronger core employment areas.
It has not hit the coastal areas yet but there are pockets of significant weakness starting to take hold in newer master plans like Talega and Ladera.
Granted the SoCal market is not the Mammoth market, but nevertheless there appears to be very similar trends starting to emerge.
Thanks Paul for sharing in excellent detail your take on inventory. When I do buy…you are my man. Thanks, Wilbur
Things happen more slowly in California as far as corrections. That is because everyone is drinking the `this place is special and so am I coolaid` The laws of supply and demand, if any understand it there, don´t believe it applies. Or anything else that may take the jam out of their donut. Truth is, after Florida, California is going to take the second biggest beating…..But you wouldn´t know it yet. Now anyone in Florida knows that real estate is done, and not coming back…But these are east coasters. They don´t hide from reality as long. There is going to be massive foreclosures in Cali over the next 18 months…Massive…that is the worst thing that can happen to a housing market…Then everyone in the area loses. Prediction, 3 years from now, you will be able to be able to buy a 300k at peak, 2 bedroom apt in Mammoth and in most locations in the country for 70k cash….And when and if you do something like this..you will be doing the bank a huge favor…because they are going to have so much inventory, and need cash like water in a dessert.
Wow, a 2 bedroom for $70,000? I’ll take a six-pack.
sign of things to come
Do you have $420,000 in liquid cash?….remember the any retarded american can survive days of the last 60 years is over…Credit and good paying jobs will not be available at the same ease. And the banks won´t be giving the house to you for $70k if they are going to be lending the 60k of it. You will have to put down 12k and take a loan out for 120k(to get the once appraised 350k house)and mr. banker isn´t going to let any yahoo in the future, do this multiple times. They will be asking a lot of questions when they lend out money in the future, like where did you go to school, and are you fiscally responsible.
On a lighter note, everybody here in the office is beat-up this afternoon. Fabulous skiing on this Leap Day!! Look for great windblown conditions on the top over the weekend.
Here here!! What a fantastic leap day it was on the mountain….and lunch at the Outpost….ah, life is grand and Mammoth is its epicenter! 😉 And how about that wind Sat morning!!! You gotta love it when mother nature flexes her muscle and reminds us of who’s the boss. Wilbur