Broker’s Report, January 17, 2020 — Topsy Turvy Condos and Homes

This column appears in the Martin Luther King weekend 2020 issue of The Sheet as a Q&A. But it is about an unusual current market condition and is fitting as a Broker’s Report.

I have been recently writing about the significant difference (disparity) between the current Mammoth condo market and the Mammoth single-family home market. Let me dig a little deeper into this subject and explain why it is so extraordinary. 

One of the resounding axioms in the real estate world is that “all real estate is local.” The Mammoth real estate market is certainly that. Mammoth is different from Los Angeles, and different from Bishop, and different from everywhere else. And market conditions in any specific market can change quickly. Or can remain rather stable and unsurprising for years. The most recent market conditions in Mammoth Lakes are unlike anything I have seen in the 30+ years of brokerage here.

I often speak of “segments” in the Mammoth market. Even in the local market there are ever changing supply and demand dynamics in different segments of the market. This can be true between condos and singe-family homes. It can be true between condos in different price ranges and/or locations. Or even between different condominium projects. And vacant lots are a completely different market. Commercial too.

Since Labor Day weekend of 2019 a very interesting market condition has occurred. In the past four months there have been periods where the amount of condos listed for sale and single-family homes listed for sale (the total inventory) were very similar, almost equal. The total number of active units listed for sale in each segment has bounced around 60 properties. The actual number changes daily depending on new listings, properties going to escrow, listings moving off-market (particularly expired listings), etc.. In the past week the numbers have spread a little with some new condo listings coming to the market (which is somewhat unusual for this time of year) and some home listings expiring and not being renewed (which is fairly typical for this time of year). But regardless, the total numbers are uncommonly close.

From a historical perspective the condo inventory is relatively low. I can remember years in the 1990s when the condo inventory peaked in late summer at around 350 units or more. And well over a thousand new condos have been built since that time. The inventory of single-family homes was relatively up in 2019, but nowhere near historic highs. And to put it into further perspective, the rough estimates are there are over 8,000 developed condos in Mammoth and approximately 2,200 single family homes. In 2019 there were 386 condos closing escrow and only 90 homes. So for the total inventories in these two segments to be almost equal in total number is a very unusual market condition.

So what is going on? Plenty. The condo market continues to be influenced by the short term rental (STR) craze. I can refer to it as a craze because it feels somewhat like one. But if we look at the real market conditions we can see why it is happening. It is simple supply and demand. Mammoth has had limited development of new STR focused units since the completion of the Westin Monache. That was 13 years ago. There have been a few dozen new condos built but not all of them end up in STR arrangements.

We are also seeing new proposals and rumors about new condo hotel projects. And projections about some boutique hotels. But where did the YotelPad go? Will the Limelight actually get built in our lifetime? The problem is the very high cost of development in Mammoth Lakes. That includes both the soft costs like design, engineering and environmental. Then there are the hard costs of actual construction. Then we have to consider what the existing condo hotel units are selling for and use them for comparable sales data. The resulting development pro-formas just aren’t that appealing. And there are competing development opportunities literally all over the world.

The conversion of the Sierra Center Mall to the ~160 room Mammoth Hotel might make sense since the structure is already there. The concrete is already poured. The owners are facing serious upgrades and renovations anyway, so why not create something that has a greater cash flow potential than a dying mall or office building? And the Westin Studio units are nailing about 300 nights of occupancy per year so the rental projections for these new rooms should be promising. And the Old Mammoth Road corridor actually has more tourist related opportunities than the Village.

But the bottom line is that Mammoth is very short quality accommodations for the increasing tourism demand that the community is generating. Good winters and increased summer tourism have juiced the demand. That combined with the whole Airbnb/VRBO/STR trend as well as other factors and we have strong demand for condos that can be placed into STR arrangements. And not all of today’s condos buyers or owners want to be part of that. Many just want properties for their own usage. So the supply is ultimately constrained.

And in the present economic environment we have the ubiquitous “search for yield”. Many local condo buyers and owners are seeing an investment opportunity for trifecta of cash flow, personal usage and potential tax benefit. Attractive fixed interest rates add to it. All of this has created healthy demand for Mammoth condos. And it is why we are finally seeing some new condos built. 

But the limiting factor for even more development is that Mammoth Lakes real estate is still selling well below the peak values of 2006-07. The values haven’t rebounded back to or beyond those values like so much of California. Many properties are still selling in the ~70% range of the peak values. There are lots of variables to that, but overall that is the range of reality. Because of this, investors still see value in the market. But it compromises the potential for developer profits. Why take the risk?   

Within the local condo market itself we see units in remodeled and turn-key condition selling for premium prices with minimal days on market. Buyers and owners face multiple challenges to getting major inside work completed; the local labor shortage mixed with high demand is one. The availability of products is another. Even if an owner has a good out-of-town contractor available, the dynamics of housing and product availability can get in the way. Buyers who recognize these obstacles are willing to pay premium prices for units that need minimal upgrading. Especially if they desire to immediately start generating rental revenue along with personal usage (including “write-off” maintenance trips).

While all of these factors have driven demand for Mammoth condos, the single-family home market has muddled along. And there are different segments within this part of the market. Homes priced below $600,000, if they have any size or livability, don’t last long on the market. Local residents who don’t see condo life as a possibility will buy them up. But they are all compromised in one way or another. Many properties above the $600,000 mark have languished on the market in the past year. Most local residents have a difficult time qualifying for or stomaching a mortgage of that size. 

Meanwhile, second homeowners are typically looking for more sizzle than these lower-end properties have to offer. They are likely to find it if they head towards the $1M+ range and beyond. All of this has caused an increase of inventory and days-on-market. As asking prices drift downward in the lower range there is destined to be local residents ready to buy and second home buyers willing to recognize these properties as good values. Compared to trying to build something new, a remodel (or living with it) becomes a reasonable and viable compromise. But until that day comes the single-family inventory is destined to remain on the higher side. 

Many of the homes above $1M also represent good value. All told, most are being offered below replacement value. Especially when you consider they are often sold furnished including other valuable items like snowblowers, spas, and even snowmobiles and vehicles. Many are built on better-than-average lots with valuable landscaping or hardscape. Some have unique or high quality construction from years gone by. But some buyers just have-to-have new. New isn’t always better. And today, new is expensive — really expensive here in Mammoth Lakes.

The disparity between the condo and singe-family markets has also moved beyond the rental and revenue aspects. Many, including long-time local residents, have found the convenience of condo life to be appealing. The mix of a few STR units and occasionally using second homeowners within a specific condo project can make condo life tolerable. Not having to oversee snow removal operations, property maintenance and more can make life easier. For years I have described this as “the walk-away amenity.” This can be a valuable amenity for both full-time residents and second homeowners, especially in the extreme Mammoth environment.

As the year 2020 proceeds we’ll see how this inventory factor plays out. I’m betting it doesn’t change significantly. The demand for condos is too compelling. And the condo rental wars are just heating up, but that is a question and column for the future.