This Mammoth Real Estate Q&A appears in the Thanksgiving Weekend 2021 issue of The Sheet.
Q: There is more and more talk about a real estate market top. Please let us know what you think in the fall of 2021?
A: A few months ago Mammoth’s most prominent and long-time real estate player deemed this the “craziest market ever”. Most multi-decade market participants like myself agreed. Webster’s Dictionary has three definitions for the word “crazy”; 1) appearing absurdly out of place, 2) extremely enthusiastic, and 3) mentally deranged. The market may certainly be all three, but let’s take a look.
There has been an extreme level of enthusiasm (definition 2) the past 18 months. But now there is a bit of market stagnation because some buyers are waffling simply based on the lack of inventory and higher asking prices. It does appear to be more about the lack of quality inventory rather than pricing. But some pricing is also a problem. Craziness aside the real question boils down to whether the real estate market is near or at the top of a proverbial bubble?? No one knows for sure. And the real inflation we are seeing is the bugaboo.
The true telltale is in watching the inventory numbers. My weekly readers know this is where I place plenty of emphasis in analyzing the market. The inventory volume is important but so is the pricing trend. Are prices going up or down? Are there price reductions happening to make sales? Are buyers resisting new, higher levels of pricing on mediocre properties? And are all segments of the market reacting in sync or separately?
One real estate mantra that has become popular is that “all markets are local”. Since the end of the original lockdowns some 18 months ago this has been especially true. It is part of the crazy. In Mammoth right now the inventory remains very low and there are sellers testing the market with high listing prices that many buyers are resisting. They are simply saying NO. This isn’t true in all segments of the market (like Snowcreek), but in most. Will these overpriced sellers reduce their prices or will they take their properties off the market (and get exorbitant rents for the winter?). That’s a bet prices will be higher next summer.
At some point the inventory numbers should grow and prices should level out. Maybe. A market top could be exposed when the inventory grows and the prices level out. The reveal will be if buyers jump back in, or not? Some buyers may be permanently scarred (scared?) by the newer and higher pricing levels of the recent months (and maybe higher interest rates?). There are still plenty of sideline buyers watching the market and new ones become interested everyday. I see it on my website traffic. And don’t forget in the Mammoth market many of these potential buyers are also IKON pass holders, so they have a reason to want be here (and own here). They want their “crashpad” or “cabin” no matter what size the property. This alone could keep the crazy, high level of enthusiasm up. Especially as it snows.
And back to the definitions of crazy. What about “appearing absurdly out of place”. Some may think so. But many markets in California are still very hot with low inventory and cash buyers bidding well over asking prices. True believers in the Mammoth market aren’t quite sure any of this is out of place. Just a couple of years ago (pre-pandemic) we were looking at market values that hadn’t rebounded to the peaks of the last cycle (2005-07). And compared to so many other mountain resort communities, Mammoth was still a bargain. Reality is that Mammoth was mired in an undervalued state for almost decade. It was only a matter of time before the local market performed. The pandemic demographic was the spark.
The undervalued state has a crazy cousin. Replacement costs are now going through the roof. Lumber prices have settled down but are still significantly higher. All sorts of other materials are climbing in cost and/or are becoming more scarce. And demand for skilled labor is sky-high. The skilled labor shortage is expected to persist for many years into the future. Some believe this is all “transitory” but building new or replacing a property right now is challenging. It may just be the future. And some buyers are buying simply to hedge serious inflation (there’s that word again).
One of my current slogans for Mammoth real estate is “use it now and remodel it later”. It is a simple fact of life. This is not a good time to have an unreasonable sense of urgency to get projects completed. Better to go skiing and snowboarding. And as I have pointed out over the decades people who remodel quickly often make mistakes or miss opportunities. There is value in hanging out at the property before deciding how to remodel it. And today there is a somewhat opposite dilemma in the market — paying a premium price for an attractively remodeled and turn-key property only to discover the work wasn’t completed so well or so intelligently. People “chase shiny objects” in a market like this.
Ultimately most Mammoth properties were selling below replacement value for the past decade. Now with much higher values and much higher construction and remodeling costs the properties may again be selling at or below replacement value. If these construction and remodeling costs remain inflationary then the current market values could easily remain supported. Or beyond. But it comes back to demand.
This leaves us the “mentally deranged” part of crazy. In late 2021 almost everything on the planet could be described this way. The Mammoth region is clearly a place people are looking to escape this near worldwide derangement. Open space and Mother Nature have their appeal. Hence one of the reasons for the strong market of the past 18 months. So what are the unique drivers of the Mammoth real estate market at this time?
The growing work-from-home trend is certainly one of them. When the Internet arrived in Mammoth back in the 1990s we believed our community could become the setting for a “telecommuting” wave. It never really happened in the volume we expected. There were limitations. One was insufficient broadband for most users including the simple availability of service. Today it is hard to believe that someone couldn’t even get service in town let alone good service. There simply wasn’t enough capacity. The Digital 395 project changed all of this.
The work-from-home influence on Mammoth real estate demand is real. There are permanent primary residence relocations happening as well as new (and old) second homeowners who have the ability to spend an increasing amount of time in the region because of their work-from-home schedules and capabilities. They are clearly pushing others out of both ownership and long-term rental opportunities. And they often have higher incomes than most local residents in the region. This alone is accentuating the true “limited supply” of properties in the eastern Sierra.
Another driver is the interest in owning STR (short term rental) properties. This only continues to grow. Mammoth has a long history with STR properties. Today it helps many people to afford more expensive properties. Airbnb and VRBO just announced record quarters. And Mammoth has been “short” nightly rental beds for years. Recent data from the Town shows minimal net growth of STR properties in the past 18 months. And many STR owners are waking up to a “quality not quantity” rental/revenue strategy. This last summer proved it. Mammoth has a long history of giving away STR. This appears to be changing. The fiasco summer of 2020 may have been the catalyst.
One other thing that makes the STRs even more viable is the lack of new hotel development. Higher construction and development costs will not help this already challenged segment of the market. And the pundits are beginning to question whether the Aspen Ski Company will actually build the Limelight without better lift access from the Village into the Ski Area. The proposed hotel facility is fabulous but the “gondola to nowhere” is not a luxury experience. These guests want to be moved into the core of the mountain quickly and effortlessly. Schlepping over to Chair 16 is unacceptable. Hotel and condo hotel development has become very challenging. Condo STRs only benefit here in Mammoth.
The IKON Pass will continue to have its influence. It is bringing masses like Mammoth and other ski areas have never seen. It is great for business but does compromise the on hill experience. It has created its own craziness. The Pass alone continues to drive people to mountain resort communities. Don’t expect this to change. And the Alterra conglomerate, like Vail Resorts Inc., relieves the economic pressure on individual resorts. This model probably saved a few (or more) resorts from going bankrupt through this pandemic period.
And of course there are other dynamics at play that strengthen the regional market. The new commercial air service to Bishop is profound for guests, second homeowners and local residents of the region. We probably haven’t even begun to wrap out heads around how impactful this will be. This should create even more demand. And the growing populations of SoCal and southern Nevada simply broaden the consumer base (anybody notice how many Nevada license plates are now in Mammoth?).
And there’s one more positive thing to mention because I just can’t help myself. Mammoth’s pseudo municipal bankruptcy of 10 years ago may have been a godsend. At the time there were Town cutbacks and layoffs to substantiate the bankruptcy. Ultimately the Town was streamlined and curtailed from a growing into a bloated bureaucracy (it was heading that way). Most people don’t realize the Town of Mammoth Lakes is incredibly well-funded through a variety of local taxes.
Today, the initial and ongoing expenditures of the new Ice Rink/Recreation Center may have the same effect. Especially once the additional monies are poured into the actual “completion” of the project. These final enhancements from scoreboards to parking lots will likely be completed just as the well-known and expensive ice rink maintenance cycle issues kick-in (2-5 years). The new ice rink could become a financial liability equal to or greater than the Airport judgement. At least the community and guests will get something of value rather than more bureaucracy and pension fund obligations. It may be a silver lining.
So what could go wrong? Plenty. A recession has to come along at some point. But the impact to the local market is unknown. It could result in more inventory and some lower prices. This could rekindle demand. No one knows for sure. The Zillow iBuying snafu and the likely collapse of China’s Evergrande could be harbingers too. Or there could be a volcanic eruption and hot lava could always flow down Main St. (again).
Mammoth and the entire region have a lot to be thankful for, even if it is craziness. Hopefully it all goes in the right direction. And for a lot of us long-time residents the craziness is just the norm.
Happy Thanksgiving!
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