This Mammoth Real Estate Q&A appears in the Christmas Weekend 2022 issue of The Sheet.
Q: Market conditions have certainly changed for sellers in the past year. As potential sellers, we think we may have missed out. We want to know the current status of the Mammoth market as we close out the year, and we’re curious about the mistakes you’ve seen sellers make in slower markets or buyer’s markets?
A: The market has certainly flipped on its head in the last 12 months. One year ago the Mammoth market was red-hot with many multiple offer scenarios, serious overbidding, and incredibly low mortgage rates. These market conditions lasted into late winter and early spring. But we are in a very different place today.
The real estate “demand destruction” has been driven mostly by higher interest rates and more specifically higher mortgage rates and added loan origination costs. It is all by design to deliberately slow the craziness of market. But the reality is that the local real state market was also hitting a level of exhaustion after two years of upward spiraling craziness.
The real key to the current Mammoth real estate market is low inventory. There has been a drip of new listings coming to the market, and new sales (and escrows) have been occurring at a similar pace. But there is no rush for the exits. There are buyers still looking in the market and the great, early snow conditions certainly increases the level of interest. The $700-800K condo range remains almost oddly strong. But that is the sweet spot for 20-30% down second home and investor buyers utilizing Fannie Mae conforming loans.
Many local real estate values, namely the broader condominium market, are also tied to tourism via the short term rental (STR) market. The Mammoth condominium market has a well established and decades old relationship with STR. It is a substantial, extremely varied industry in Mammoth. Quite frankly, without a larger “Village” and more hotels, the community and Town need the condominium bed base for not only guest accommodations, but for the bed tax generation that funds all of the local government operations (including things like snow removal). It is a critical symbiotic relationship that keeps Mammoth Lakes humming along.
This tie between the local condo inventory and STR is important to local real estate values. It is a classic case of “all real estate is local.” Tourism has been incredibly strong the past two-and-a-half years here in Mammoth. At record levels and beyond. There are many drivers. But higher consumer inflation and other negative economic concerns could jeopardize this. So far this winter season hasn’t experienced any of this. Accommodations are booked solidly through this holiday period and well through January. The IKON Pass is definitely one of the drivers (the whole “cheap ski pass”” concept works to create high levels of tourism demand). And for Pass holders, owning the pass is a sunk cost at this point. Gotta use it.
But the higher operating costs, including minimum wage, are certain to have some impact at some point. Or maybe not? Locally, operating any sort of tourism related business in Mammoth is a great challenge, and especially at this time. Good employees are scarce (although new workforce housing projects should help significantly). Expenses are up. Demand is high but seasonal. The cost of snow removal is skyrocketing. And forget rising insurance premiums. All of this will eventually be passed-on to the consumer.
But so far all of this has yet to trickle down to any meaningful impact on the STR market and local condo values. The Mammoth experience can be a relatively affordable vacation. The operative word is relative—relative to other, similar vacation experiences. And again, the IKON Pass definitely helps the affordability of the winter experience. Summer is still a bargain and can be done “on the cheap”. Mammoth tourism is not recession proof but has proved to be resilient in tougher economic times (I’ve lived through far more economic down times in Mammoth than boom times).
And potentially less STR revenue will impact owners differently. Many may not care. Some may decide to just utilize their properties more. Some may become motivated to sell and increase the inventory. More inventory and potentially lower mortgage rates could easily bring willing buyers back to the market. And many STR owners have super attractive low mortgage rates that may never be replicated. Properties with these low mortgage rates are going to be very difficult to liquidate and walk away from. This alone is an interesting dynamic of our current market as well as the macro market.
And for sellers? These changing markets conditions have impacted sellers in an almost shocking manner. As my favorite fishing captain likes to say, “nothing good lasts forever.” We have just been through a grand period to be a real estate seller in Mammoth. Many legacy property owners were pushed off the fence to sell. It was just too enticing. And sellers with compromised properties, like with obvious incurable defects, also took advantage. Some of these properties may have sat on the market for years in the past. In this case, they sold rather quickly.
One of the best phrases I have come across in the past months is “real estate prices are a snapshot in time.” It is so true, and the year 2022 has proven it. Historically, values have stagnated for years in this market. Most of the 1980s and 90s were classic. Then there were periods of great upward appreciation. I still look at my old MLS books (pre-Internet) with fascination. And I have witnessed appraisers doing “forensic appraisals” trying to establish values from some point in the past. Except for a couple of short periods of appreciation, the values have remained very similar.
But as I expressed in my last column, Mammoth is very much a “don’t have to buy, don’t have to sell marketplace”. Many sellers (owners who have their properties listed for sale) who missed out and don’t have any debt appear to be willing to just ride it out. The future is uncertain. Some may just decide to keep their properties. And over the years I’ve heard so many times, “I’ll just let the kids inherit it at a stepped-up basis”. This is a “don’t have to sell” seller (owner).
The most recent real estate “panic” news is that there are now hundreds of thousands of new homeowners who are “underwater” (underwater meaning their mortgage is more than their current market value). But these are low down payment buyers who have attractive mortgage rates and would also face very high rents if they were to lose their properties. Walking away may be a very foolish move. History has proven that. Here in Mammoth, few new owners are underwater; the last three years experienced a large percentage of cash buyers and very few < 20% down buyers. Simply, Mammoth isn’t a low-down payment market.
With the easy selling days in the rear view mirror, owners who want to become successful sellers need to assess the market on a day-by-day case, value is a “snap shot in time.” Just in the last weeks I have been involved in a couple of multiple offer/overbid situations again. Maybe the snow has brought some renewed winter buying madness. Limited inventory and great snow conditions can do it. Buyers can become seriously motivated after some great skiing or snowboarding.
Pricing properties for sale can be a hit-and-miss proposition. And ultimately much of it comes down to the seller’s motivation. Often you just have to try. Trying means getting the property in the best shape possible to make it attractive to a buyer. The more “turn key” the better in this market. In Mammoth that can be a challenge because sub contractors are super busy, especially as the holidays and busy tourism season approaches. But sellers in this type of market always need to put their best foot forward. And what a difference a year can make.
Sellers also need to have the best marketing, especially photos and other visual representations. I see many more agents going “budget” and just shooting lousy iPhone photos for the MLS. These photos populate to all of the various real estate websites and are disservice to the seller and the potential buyers. This is a big deal at this stage of the game. The property descriptions that populate to the various websites are important too. Some agents get lazy, and others get too cute or flowery. We’re back to marketing basics focusing on features and benefits. This is incredibly important in the Zillow age.
Most Mammoth properties are sold furnished. This is pretty typical in a second home market. Some sellers like the idea of “leaving behind all of their junk.” I often refer to some furniture as “transitional furniture.” But in the Mammoth market the personal property often becomes the most contentious part of the transaction, despite the agent’s best efforts to keep it from becoming such. Laughingly, the agents can become what we call “furniture brokers.” Sellers should take effort to remove any specific furniture pieces or personal items they intend to keep. Other things need to go to the thrift store, or to the dumpster. De-crapifying is key.
Lastly, sellers need to be realistic about the condition of their property. The party is over for buyers overlooking deficiencies. It was fun while it lasted. Buyers are now back to scrutinizing details. Sellers need to be clear in their disclosures. Some people like to call it equilibrium in the market. The wanna-be sellers don’t like it, but the market needed it.
We all wish we knew where we will be 12 months from now. Hindsight is a funny thing. We may have increasing revelations about many things that have occurred the last three years, including real estate. Predicting the future, especially now, seems like a fool’s errand. The market will sort itself out. The inventory numbers, mortgage interest rates, sales activity numbers and the micro and macro economics will all play their part. Meanwhile, enjoy the glorious snow covered mountains.