Real Estate Q&A––The Not-So-Boring 2000’s

This Q&A column appears in the Christmas weekend issue of The Sheet which hit the newsstands today. I apologize for such a long time between posts, but I’ve been busy shoveling snow, helping close pre-holiday sales, and giving away yellowfin tuna. Happy Holiday!! whichever one you happen to be celebrating. And yes, Mammoth is buried in snow. I thank all of you who take the time to read here.

Q: In the past, while the market was going crazy, you wrote about the whole baby boomer influence on the Mammoth market. Now things have changed so dramatically and nobody seems to talking about it. What effects are the boomers having on today’s market?

A: First, a little historical perspective. In the late 90’s, just as Intrawest’s marketing machine was gaining momentum here in Mammoth, the famous (and now somewhat infamous) economist and author Harry S. Dent published a book titled The Roaring 2000’s. Dent had earlier published a book titled The Great Boom Ahead. The Intrawest development and marketing folks embraced the demographic theories in these books. Dent did fail to be an accurate predictor of investment trends (hindsight has proven that), but let’s face it, the last decade has been full of wild cards. But Dent’s work on baby boom demographics remains rather profound, and it was founded on real data, not predictions.

The underlying premise of Dent’s demographics is that the baby boom generation is a massive population wave. Dent refers to it as the “greatest boom in history.” The population data is undeniable. There is an eight-lane highway of people born between 1945 and 1960, and that wave has and will continue to have major effects on all sorts of things. Part of Dent’s data showed that as people age they experience peaks in their spending habits, especially discretionary spending like luxury goods and services, and vacations and vacation homes. Dent plotted those trends and peaks in typical spending with the demographics of the baby boom generation and made a solid argument for increased demand in places like Mammoth. We are currently in the midst of the wave with the leading edge of the wave hitting 65 years old and the back-end of the wave in their early 50’s. Dent also noted that this generation was younger feeling, more active, and generally healthier than the generations before. (Knee replacements for everybody!) He also had some impressive estimates about how much money the baby boomers stood to inherit from their parents. All told, this baby boomer wave would create tremendous demand for recreation and leisure pursuits and the real estate associated with it.

But along came one of the wildcards––the credit bubble of 2004 to 2007. Without it, we may have seen an orderly demand for second homes and retirement homes in the Eastern Sierra. And without it we may still be developing new homes and condos, including a moderation in values due to developers filling the demand with new supply. But the credit bubble threw everything into chaos. First was increased demand that in turn caused an artificial increase in values. And there was too much speculation––too many people buying in Mammoth that weren’t really “Mammoth people” with no real passion or commitment to the area or recreation. Then the pendulum swung and created even more chaos in the form of foreclosures and short sales. Values fell so fast in two-to-three years it is still a little mind-boggling. But the demographics haven’t changed.

What we’re seeing here in Mammoth today is a microcosm of the whole baby boom generation. Objectively, we’re seeing the winners, losers, and as I call them, those “along for the ride.” Some boomers feel they fit into all three categories (I know I do). The economic winners (whose interests align with Mammoth) are buying in Mammoth. Real estate values are much inline with the values of late 2002 and early 2003, so it is like the credit bubble never happened. Many of them watched the mania thinking they may never be able to afford a place in Mammoth. And today, plenty of these buyers are buying with cash. Many are purchasing at less than a realistic replacement value (it all depends on how you value the dirt). Most are stoked they are buying now as opposed to five years ago. On the other hand are the losers. They can primarily be found in the foreclosure line. And most of them have loses beyond Mammoth. Many invested all over the place, or were serial re-financers. I hope they have the youth and years to rebound, but time catches up to all of us. (And I’ve already seen at least one foreclosure victim re-purchase in Mammoth, using mom and dad’s credit.)

Then there are those that are “along for the ride.” Some will eventually be foreclosed on, some are just paying the bills and considering selling, some are actually listed for sale but at a number the market will never support, some have become landlords, and some have found their enlightenment and, despite their financial woes, are using their properties more than ever and getting into the best ski and hiking shape of their lives. And that remains one of the themes of this whole baby boom generation: they are now-more-than-ever facing their own mortality, and along with that they start making different decisions. And moving away from the rat race is a start. The boomers are grasping the concept of “lifestyle equity” as opposed to financial equity. In the end, the real winners are the ones who seize the quality time. Dying with all the toys is a tired concept. Wearing out a few toys is a lot more fun.

Years ago the Intrawest marketing gurus driveled-on about “legacy properties,” and guess what?, we’ve now come to that. The boomers had to age a bit. I’m hearing it more and more, “I want to leave this for the grandkids.” I tell them, “Yeah, Christmas 2040 they’ll be sitting here toasting to you.” Leaving heirs with cash to squander has lost its appeal for most. Leaving them a “cabin” for years of experiences (and some real estate responsibility) is far more appealing. And many boomers are becoming quite nostalgic too. I hear it, “We came to Mammoth with our parents when we were kids, learned to ski on Chair 7 and learned to fish at Lake Mary. We want that experience with our grandkids.” It is clearly driving real estate purchases. All of this, as they say, is priceless.

Another growing trend is what I refer to as “duality.” As many boomers plan their semi-retirement or retirement and their escape from city life, they find it appealing to have homes in more than one place. Recent studies show that one close to “mountain activities” is high on the list. Many desire to compliment a mountain home with one in a desert or a tropical/beach location, or maybe both. Many boomers are simply enhancing their recreational opportunities and relaxation by changing their asset allocation. One of the key elements to the plan is that one or more of these homes need to be within reasonable proximity to their kids and grandkids. What makes it even better is if the home is usable by the kids and grandkids even if grandma and grandpa aren’t around. Properties are becoming retirement homes, rental properties, and legacies too. Mammoth fits this scenario well. Mammoth has always been about the multi-generational experience. Today’s buyer in Mammoth is back focused on the experience, not on speculation or some cash-on-cash return.

Meanwhile, Mammoth has become more boomer friendly: expanded hospital and medical services, increasingly better digital service, year-round air service, better highways, etc. And don’t forget shaped skis.

So the demand by boomers to own a piece of Mammoth has not gone away. In fact, with more affordable prices it may be stronger than ever. But many boomers sensed a market out of equilibrium in the middle of the past decade and shied away. The sales activity of 2010 is an indicator the boomers having been watching the market and have returned. And plenty of them continue to watch and weigh, and looking for that just-right property.

And not all the buying is being done by baby boomers. The younger generations are buying too. Southern California is populated with plenty of young and successful recreation diehards. And they might even let their parents use their new Mammoth home.