Mammoth Real Estate Q&A — The Great Mammoth Reset??

This Mammoth Real Estate Q&A appears in the Labor Day weekend 2022 issue of The Sheet.

Q: We live in the Owens Valley and read your columns in The Sheet. We’d like to buy a house at some point but we think you are avoiding the fact that real estate is about to crash like it did after 2008. Why can’t you accept this? 

A: First of all, I’m an optimist. If I wasn’t, I would have been dead a long time ago. And I probably would have failed at a multi-decade real estate career without plenty of optimism. That said, some of my most recent columns have addressed the factors for why a crash in the Eastern Sierra might be derailed. I also try to be objective. I know this is an increasingly uncommon trait, but I believe it is worth the effort. 

I wouldn’t disagree with you that a crash is possible because so many of our elites have made a mess of everything. But my optimism is beyond wishful thinking. And as a sidebar, there is one thing I have learned over the years in the business; some people will never be buyers of real estate, no matter how low it goes. It is just human nature.   

The current conditions are somewhat different from 2008. And arguably there is the potential for it to be worse. Those to blame include the Federal Reserve, the politicians especially those in Washington DC, Wall St., social media outlets, and plenty of others. And some of my thinking may sound like a broken record, but markets are ever changing and these times are challenging. Staying fluid and apprised of all the dynamics is key.

Today, the major headline is that there are indications that something has fundamentally changed in Mammoth Lakes in the last two years. What are the signs? Look around. One is the impressive luxury construction at both the Limelight Hotel (Aspen Ski Co.) and in numerous high-end neighborhoods in Mammoth (and right now is a very expensive time to build anything). Another indicator is the over-the-top TOT (bed tax) numbers the Town is already reporting for 2022 (and without the messy hordes of visitors we experienced in 2020/21). And anecdotally, the number of jets and expensive aircraft I see coming and going at Mammoth Airport.

My concept  of “movement” from the last two years is now being referred to by others as The Great Re-Shuffling. The cards may have been re-shuffled in Mammoth’s favor, and the whole Eastern Sierra might be along for the ride. The real estate industry is also talking about the concept of “Plan B”. And it isn’t just a boomer thing. It is affecting many rural areas like this region. Many people want a Plan B in there life, even if it is a simple roof tent or bug-out van. 

For the more affluent (or semi-affluent), their Plan B can/will include a second (or third) home in a place like Mammoth. Or somewhere even more remote in the Sierra. For long-time Mammoth market observers, this has been a growing concept for years (but we’ve referred to it in different ways). The concept took new life in the summer of 2020 (remember the rioting in Santa Monica and Beverly Hills?). The last two years has simply accelerated the Plan B concept in many people’s minds. 

So where is the market currently? Admittedly the market has slowed. But it couldn’t keep going at the pace it did the first five months of 2022. Or even since the end of the lock downs. It was simply ridiculous. It was reminiscent of the saying “That which cannot go on forever, will not go on forever.” Now that the hyperbolic pricing and overbidding has settled down, we will have a chance to see where the market really is. Some call it price discovery. Other industry pundits are describing the macro market as “confusing.”

We’re back to constantly examining the inventory (my broken record). The numbers have risen but haven’t exploded. There is no apparent mad rush for the exits in this market. In the last 30 days it has stabilized and actually declined. The total inventory numbers are still historically low. Properties are being shown and properties are going to escrow. The truly motivated sellers are cutting their asking prices. But most price reductions are a by-product of agents and sellers not really knowing how high they should price their properties in the past 120 days. There were many recent months where there could be “money left on the table” if priced too low. But that is over. 

For Mammoth, the fall has historically been a very active selling period. It is the “anticipation of winter.” But mortgage interest rates are now playing their part. The rise in rates undoubtedly helped stall the craziness of the first five months of 2022. But now that the “shock” is over and rates are no longer absurdly low, many have come to realize they are still just historically “normal.”  The mortgage industry has bumped second home and investor rates to cool this segment of the market. This is clearly making some buyers hesitate.

But there is a distinction between the Mammoth market and others. A market like Mammoth is far different from one dependent on first-time homebuyers. Mammoth has plenty of cash buyers and buyers with plenty of discretionary income. We’ll have to see how the market shakes out in the coming months. Again, inventory and pricing will be revealing. 

One of the more subtle, positive indicators for Mammoth is the flow of capital into the community. There is capital flowing in many places, but those who remember Mammoth in the 1980s remember the capital flowing out of Mammoth. Right now the flow is clearly inbound. The work at the Limelight property and Sierra Nevada Inn is indicative. The Ormat geothermal plant expansion is a major flow of capital into the region. They are the second largest property tax payer in the County too. And Alterra is making substantial capital improvements (infrastructure) at Mammoth Mountain. 

And what about the Town’s new ~$25M Ice Rink?

The capital is flowing into the residential side too. Drive through some of luxury neighborhoods and you will see numerous new construction starts. These are large luxury homes. Expensive to build and even more expensive in today’s construction environment. This new construction demand is on top of all the recent sales in the luxury home and townhome segment. These sales have been at a record breaking pace the past two years (which continues, although at a slower pace). The Planning Commission recently reviewed plans for a ~6,000 square foot home proposed on one of the premier lots in The Bluffs. All of this is telling about where the Mammoth market is heading. This is all serious money and a new level of affluence. This is a fundamental change.

And there is condo remodeling happening all over town. And some flipping too. Short term rental (STR) is big driver of this market segment. The significant upward trend of TOT generation is partly due to the whole “Airbnb”/STR trend; more and more property owners are pursuing STR as an investment strategy, including making their properties as attractive as possible for their guests. This subsequently leads to higher nightly rental rates, more annual revenue and greater guest satisfaction. Properties that have good cash flow aren’t likely to be foreclosed on (like post 2008). And STR properties become even more valuable as the Town and Mountain purchase lodging properties to convert to workforce housing.  

All of this is spilling over into the outlying areas and Bishop too. And as Mammoth becomes an increasingly expensive place to own real estate, we are thankfully back to focusing on workforce housing, again. We are going to need it more than ever. But it too is more capital flowing into the region.

What many of these affluent investors and owners have come to realize is that Mammoth has been grossly undervalued for a long time. Maybe for the last 40 years. Back then earthquakes and volcano scares destroyed local real estate values. The fake news of that era played its part — no discussion of Mammoth was absent the infamous video of Mt. Saint Helens erupting. Over the past 40 years other mountain resort communities have become very pricey while Mammoth remained rather bourgeois. Many people liked it this way. It was affordable to a larger swath of people. Those days may be over. And today, not having to get in airplane to get here is a real bonus. Although a private jet isn’t too bad (plenty of people doing that).

The larger awareness of the Mammoth market being underpriced for so long is another fundamental change.

Then there is inflation. Inflation will inevitably impact some sellers and potential buyers. But in this market the extent is still unknown. And we have no idea how long this high inflation will last. And the affluent know all about hedging inflation by investing in real assets, including real estate. This inflation hedge, and having a Plan B (or Plan C or D) is a new marriage.

And then we can talk about rents. The back side protection for all residential real estate in this region is the high demand for rentals and the subsequent high rental rates. Rents may have plateaued, but only time will tell.The new workforce housing projects will put a small dent in rents, but that new supply could actually increase the demand. Availability alone has simply excluded many from moving to the region.  

For now the Mammoth real estate market appears to be normalizing, and this is not a bad thing. What does it really mean? Sellers and agents will need to be more in-tune to pricing. Pricing is a snapshot in time, what is today might not be tomorrow. Pricing will be fluctuating based on supply and demand. And any price declines are always “sticky” on the way down. In this market they could be very sticky. Some sellers may have to adjust their expectations. Or just move to the sidelines (“let the kids inherit it”). Quality properties still remain highly desirable. 

In summary, these greater economic and demographic trends make me believe the regional markets will remain healthy. But we are living in extraordinary times. Now we just need some more big winters.

Happy Labor Day Weekend!

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