Real Estate Q&A–No Locals Left Behind

This Real Estate Q&A appeared in the Labor Day weekend 2008 issue of The Sheet. Wind and cooler temperatures this weekend put everybody in “winter is coming” mindset.

Q: As relatively new Mammoth locals, we’re weighing our housing options. We can qualify for Mammoth Lakes Housing properties and have been sensing that regular rentals rates are coming down a bit. But we really would like the chance to buy something. What’s your take on opportunities for locals to buy in the next few years?

A: To answer this question we need to visit some changing market conditions. Let’s look at rents first. Residential rents are the underlying driver in the decision making process to buy or not for many people. Many locals bought homes at opportune times in the 90’s and hedged nicely against increasing rents. They bought in the whole spectrum of properties from $35K condos to fourplexes they call home.

Mammoth rents escalated significantly in the past ten years due to rising demand and increased market values. Part of it was purely economic as Mammoth bounced out of the economic depths and doldrums of the 90’s (it really couldn’t have gone much lower––some properties were “almost free”). Part of what drove the demand was the large workforce building new properties. (Why do you think so many see the Clearwater project as an immediate panacea to our local economics?) As we’ve learned it’s just a short-term phenomenon, albeit a good high. Another sneaky, but real demand driver was the creation of the Value (ski) Pass. Many new season pass holders (30,000+) figured that a seasonal rental (or ownership) was an automatic part of the program.

But while demand has been curtailed (at least for now), supply has risen on many fronts. Mammoth Lakes Housing has developed and impressive number of “affordable” units for both owners and renters. The Ski Area has built new employee housing projects and bought a bunch of condos along the way. Even the college now has housing (and very nice too!). But what has also increased the current supply is a core of owners who bought in the past few years and for whatever reason––from just needing cash flow to not being ready to re-locate or retire yet––have thrown their properties into the rental pool. And there will always be very high demand for winter long-term rentals of 4 to 8 months at premium rates. All in all, rents have become somewhat more affordable in the past 18 months, but only time will tell whether they stay there.

So what about the affordability for buyers? The good news for some (those that want to buy) is prices are coming down. But each segment is different. The bad news is that financing has tightened, but there are still loans for responsible people especially if you have a down payment. There are still good loan programs for first-time homebuyers. Right now a dozen or so foreclosures are spotting lower prices in the market. But not all of these foreclosed properties are attractive to or geared for locals. But at the right price they might be. The bigger question might be what types of properties may come available in certain prices ranges.

One segment of the market and price range that remains fairly stable and price supported is single-family homes in the $700,000 to $900,000 range. I’m not saying it’s hot like three years ago, but there are ready, willing and able buyers in that segment. But many of these owners/sellers are still holding out on higher prices. If a listed price drifts downward there is usually a buyer somewhere along the line. The point is I don’t see these homes coming down into the $200,000 to $300,000 (or less) range where they were in the mid-90’s. And if they did there would likely be investors competing to buy them for rental properties. Like many mountain resort towns, quality middle-income housing in Mammoth remains a big problem. It needs to become the new focus of subsidized housing or else the town will always have difficulty attracting new teachers, nurses (even doctors), middle managers and the like.

We are seeing some home pricing down below the $500,000 mark, but these properties usually have some serious compromises––location, age, etc. If they go much lower (say by another $100,000) I suspect there will be plenty of buyers. And I’ve been watching home values in Bishop (planning for my older age) and there are some nice homes in the mid-$300,000 range down there. A couple of big winters will always make that look attractive.

Then there’s the condominium market. Back in the mid-90’s when I sat on the Town’s Housing Advisory Committee I was intrigued by what would happen to all of the aging condos as Mammoth pursued the goal of becoming a world class destination resort (and building lots of new and modern condos). I did my own study and identified the condo projects that I felt would transition to local’s housing as opposed to remaining second-home oriented. (Remember, at the time values were at an “almost free’ state.) My study came up with approx. 2,000 condos that I felt would become more permanent resident oriented. Much of it has come to fruition in the past 12 years. A quick drive through certain parts of town and it becomes obvious. This is valuable housing stock that many resort towns would die to have. And now as values backslide, there will be new opportunities. And as has happened in the past cycles, maybe some old owners will be willing to owner finance (and maybe Barack will influence that).

The problem with some of this old condominium stock is exactly that: age. Most of these projects have or are facing large assessments for much needed capital improvements. But whether anybody realizes it or not, the second homeowners who have, or are, paying most of these assessments will help locals get into older but remodeled and well maintained housing in the future. So for prospective local buyers, good timing and analysis can make for a quality purchase. Reviewing the Homeowners Association information, including financials and reserve studies, is a boilerplate contingency in condo purchases. But having an idea of where a project is in their capital improvement program and funding is essential to the successful shopping process. Ultimately, I don’t think we’ll get back to the “almost free” values in Mammoth, but there are and will be good opportunities for local residents to buy in at affordable prices.

As we are learning in this current cycle (especially with the foreclosures), is that some people are just better renters than owners. Those people should remain renters. But as I’ve witnessed so many times before, owning one’s own home gives you a completely different attitude towards the community in so many ways. An old axiom of public planning is “home ownership makes mayors of all your citizens.” I think we can always use a few more mayors in Mammoth. Mayor Wood might even agree to that.

4 thoughts on “Real Estate Q&A–No Locals Left Behind”

  1. mm1968
    As always, Paul has delivered experienced, wise perspective on “today,s” market and highlighted key technical buying questions that all, including local, property buyers should know the answers to before making a seemingly bargain purchase. Deferred maintenance on aging single family homes and pending mega special assessment fees for aging condos are critical factors for matching investor $ capability with property cost of ownership. Non-understood or ignored aspects omaf sub-prime mortgages were no great deal and a screaming bargain property with non-understood costs of ownership is no great deal. I would add two ideas to Paul’s insightful perspective.

    First, what is unique about the local Mammoth buyer and “home” vs speculator property investment? Mammoth locals live in a very limited, boom/bust job market. Very few Mammoth locals can comfortably predict a ten year earning base line and ten year commitment to Mammoth. Good speculators hit hot markets hard and early. Experienced speculators do not enter the market until it is clear market forces are rising, and exit before the top is obvious. Family “home” buyers try to buy in down markets and hedge their investment bet with the plan to hold for ten years plus, ensuring that they can have the option to sell at a profitable market point. Is this a real scenario for most local Mammoth buyers?

    Second, guessing if we are near the bottom of this down market is only part of the planning question for primary“home” buyers and their ability to ensure their home purchase will be a financial benefit. Are we within a year of this down market’s bottom? Will the bottom last one year or three years? Will the climb out of the down market, from your buy in point, take one year or five years? If you buy with a ten year horizon, your chances of benefiting from appreciated value are extremely good. Buying into today’s free fall market is different than buying into the early or mid phase of a climbing market..The ten year “home” investment plan is more critical today, than it is in a boom phase.

    My comments are based on the real-estate cycles of the past 63 years, well before I was born. Cycles of the last 25 years support the safety of ten year “home” investment plans. All this becomes nonsense, if the perspective of a couple of Paul’s readers are correct and the US real-estate market has evolved into an entirely new paradigm that cannot support or generate the economy and real-estate cycles of the past 65 years. I am optimistic and have my share of not wanting to believe that my hay days were unique and will never be seen by following generations. The one thing that concerns me is the disparity between relatively educated, successful young people’s income and home prices. Does this mean that Mammoth and all past, hot housing markets must drop to the level that is affordable to a sustaining buyer base? Does this mean that Mammoth’s bottom could be a long flat bottom? What will be the generator for the next cash flush, appreciation growth period? Don’t tell me Mammoth commercial air service or a vibrant Village. I am talking national economic power that generates cash for second homes and a booming vacation business that allows Mammoth locals to make ten year buy decisions.

  2. speaking to mm1968…blah, blah, blah…you have to realize that you are ruining the reality of 85% of real estate owning coolaid drinking mammoth owners. it is a beautiful place, and they aren’t making anymore land…plus Suzanne researched it….

    The thing is about a going up market, if you make 130k one year and a perfect storm of once in a century hell is unleashed on you, it is ok, because if you can’t pay your morgage, you can sell it in a rising market, it will sell quickly and you will rent plus have 50k you didn’t earn in your pocket…..Now the bad news…in a down market, the smallest bad luck and now you can’t sell your place anywhere near your purchase price. you foreclose and leave with a bad credit score and no money in your pocket….This is the reality that everyone in the country is going through. This is why the problem is just starting. What happens when there are layoffs over the next 14 months…it will be different than in02,03, because now your house won’t bail you out…Think about this

  3. also mm1968, you nailed it. Wow, thanks for hitting us with harsh reality. Yes, you were alive during the most growth of a middle class ever in the history of human beings…Almost anyone could have been successful in your generation and live better than their parents, and no it wasn't because you were special or worked hard, it was luck. Your generation is extremely pathetic for this reason and ignorant. You are the first suburban sprawl babied generation ever…. But it is all over now< i hope you had fun buying stuff you didn't need. It did create the best consumer economy ever, but again, it is all over now. Get ready for a large drop in living standards. It is not a big deal for me, I understand economic cycles just like you, that is why it must be so scary to you and me, and no big deal to those who have no idea what is coming quickly. This is not pointed at you because you understand what is going on, which means you are one of the few who knows how to think. Your generation doesn't get it though. The only reason the next generation might know a little better but not much, is because things are not as easy


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