This Mammoth Real Estate Q&A appears in the Christmas/New Year’s issue of The Sheet.
Q: I have owned a second home in Mammoth for a little more than 20 years and have seen the ups and downs in local real estate values during that time. Despite any recent increase in values, it has always been my thinking that Mammoth real estate on the whole is greatly undervalued. What do you think?
A: In retrospect, the late 1990s was maybe the most opportune time to purchase properties in Mammoth. There was a series of events that made it this way starting in 1980. And there have been an interesting sequence of events since 2000 also. It all leads to where we are today. Let’s look at some history and current market conditions that all suggest that Mammoth’s real estate is likely to be undervalued at the present time.
What most people don’t realize is that in 1980 Mammoth real estate values were some of the highest amongst all of the mountain resort communities in North America. That included almost all of today’s glitzy and very expensive resorts. Much of it was driven by the popularity of Mammoth Mountain as a ski area, a strong southern California economy enhanced by the aeronautical industry, and an era when Hollywood-types and other celebrities actually came to Mammoth (I remember waiting on some of them). There wasn’t any hyper-marketing or massive air subsidies back then. It was simple attraction. Families drove the station wagon up Hwy. 395 and ski clubs came in droves in buses. People skied (and stood in long lift lines) and people partied.
But in the spring of 1980 there was a series of strong earthquakes around the Mammoth region. Mt. St. Helens had blown-up a week earlier. The media mixed video footage of the Mt. St Helens eruption with reports of Mammoth’s earthquakes. It was fake news of the era and they did it repeatedly. This was long before web cams so there was no ability for out-of-towners to see for themselves. There was a resulting cascade of negative information about the Mammoth volcano erupting and imminent eruptions and “lava flowing down Main St.” Years later many people truly believed Mammoth Mtn. erupted and the town decimated. It was the beginning of a long decline and stagnation of local real estate values.
The California recession of the early 1990s stalled a slight recovery in the 1989-90 period and values slid even further for the balance of the decade. We had to wait until the year 2000 to see any real appreciation. By then Intrawest was driving the Mammoth real estate train and local values rose like the rest of California. The noted peak was in spring of 2006 but there were sporadic higher sales in 2007. Even with recent appreciation the local market has still not recovered to the peak numbers of that period. Up until the spring of this year most values were still ~75-80% of the peak 14 years ago. Considering the general inflation in the past 14 years, this alone is a solid argument for the Mammoth market being undervalued, especially considering that most real estate markets in California have exceeded their 2006 values in the past few years.
Now we have several new factors impacting values. In my July 3rd Q&A column of this year I questioned what the future supply and demand characteristics of the local market might look like. It was quite uncertain at that time. There was some demand and clearly panicked/motivated sellers. The market was showing activity, and there was the beginning of what I referred to as significant “movement” by both buyers and sellers in the market. Six months later we know that demand has skyrocketed well beyond supply especially in the larger home and condominium market. The available inventory of both homes and condos is currently far lower than anyone can recall.
One of the most significant factors driving demand is the new work-from-home (WFH) trend. It is clearly driving the demand for larger properties in the entire region. And so is the desire to have a place “out of the city.” And in the past seven months we’ve seem numerous “move-up” buyers; existing owners purchasing larger properties. Many of these WFH owners intend to spend considerable time here in Mammoth in the future. The Covid experience and WFH has simply given existing and potential homeowners the vision and hope to spend more time in Mammoth. And they will undoubtedly be making improvements to their properties. I also believe many will eventually build their own custom homes. Some (maybe many) of these large second homes may actually become primary residences. Places like Truckee are already experiencing this.
When considering whether current properties are undervalued, we need to look at replacement costs. This metric is often used as part of an assessment of a property’s value. For the past decade most of Mammoth’s properties have been selling below replacement cost. Many, far below replacement cost. This is why there has been so little real development. Only the best developers have been able to eke-out profits. And really only when the land can be acquired very inexpensively.
But now construction costs are skyrocketing. Lumber, concrete and other materials are being impacted by various economic forces. This alone is essentially raising the basic value of existing properties. The current new construction offerings in Mammoth are starting to look like bargains in light of these rising costs. If demand remains strong these prices are certain to increase, and likely in the immediate future. Almost everything currently on the market could be undervalued if these construction costs remain high or go even higher. And these higher costs do nothing to help the community solve the workforce housing crisis.
Then there is the scarcity issue. Many visitors see infinite land in the area and can’t comprehend the scarcity of developable land. But Mammoth is a landlocked island. Our County (Mono) is basically 95% government owned. And they are not selling. There is actually more private land moving to public ownership then vice-versa. And to “conservation” status. Within Mammoth a good chunk of the undeveloped land is zoned for hotel or condo hotel. A year ago we thought there was the potential for new developments in this segment. Covid has thrown a big wrench into this. And with construction costs rising significantly and condo hotel values relatively stagnant, this land will likely remain undeveloped for at least another decade, or longer. (Westin Monache units are currently selling at ~2/3rds of what they sold for new some 13 years ago. This fact alone should scare-off condo hotel developers and construction lenders.)
The biggest chunk of remaining undeveloped land is in the Snowcreek Meadow. All of Snowcreek has been a very hot seller in the past seven months. If the market conditions continue, construction of new units may accelerate. Prices are sure to climb. And just recently, vacant single-family home lots are selling. Their values have been suppressed because of the inherent high cost of construction in Mammoth. But every year there are fewer and fewer available undeveloped residential lots. More scarcity.
Another important metric in property valuation is the income or revenue approach. Here’s is another area where things have become crazy in Mammoth. There has almost always been strong rental demand in Mammoth. But now there is heavy demand for short-term rental (STR), long-term rental, and even medium-term rental (MTR). What some people are willing to pay is off the charts, especially in the medium and long-term. Many of these are new WFHers. All of this fundamentally makes properties more valuable. And there are some interesting dynamics in play.
The likes of Airbnb, VRBO, Bookings.com, etc., have certainly enhanced rentability, revenues, and values in the past few years. And the potential for owner usage (including WFH) and revenue is still the main attraction for STRs. But the lockdowns have created a surprising new demand for rentals in the two-to-six month range. In the past there was very little market for this outside of seasonal (winter) rentals. This new demand is different, and undoubtedly influenced by WFH. And so far these renters are willing to pay substantial amounts for quality, well-outfitted properties. Like ones that are currently in the STR market. And this is where the demand is looking for available properties, and finding them (which in turn reduces the supply of STR properties).
And interestingly, this new demand for MTR can be fulfilled in properties that are not permitted for STR. Rentals of 31 days or longer are permitted in single-family neighborhoods. This could create a whole new dynamic. And these rentals have the potential to have very high rates. Some second homeowners of single-family homes are likely to be interested in this new revenue stream opportunity. If the MTR demand continues it could become very popular to cater to this crowd. And lucrative. Basically, the entire town is permitted for MTR. This is important. And there will be no TOT due on these rentals.
Rents in the long-term market have climbed substantially. This is a disaster for local workers and renters. Many of the new WFH crowd can simply pay more in rent than local residents. All of these higher rents simply make the properties more valuable. And pure income properties like apartment buildings have seen significant increases in selling prices in the past couple of years (thanks mostly to ZIRP). Now they are positioned to go even higher. Ultimately, all of this higher revenue potential equates to higher real estate values. It is already happening.
Months ago the pundits said everything is going to be re-priced and re-valued due to Covid-19. It is happening all over Mammoth, and not all of it is good. We better get to building the 500 workforce housing units at The Parcel and continue exploring even more affordable housing opportunities. And maybe we need to organize concentrated dispersed camping areas around town where people can live; RVs, elaborate tent camping and miscellaneous bivouacs. It is already loosely happening. Our leaders need to get out ahead of it. Maybe this is where we need sprung structures.
As the long undervalued real estate in Mammoth continues to increase in value because of the current market forces, there is no more important time for our community leaders to be prudent in their actions and decision making. The public needs to pay attention. And the people who have made substantial investments in the community do too. I’m hoping the younger generation of local residents and business people and other newcomers to the community can rise to the clarion call.
Happy New Year!