This Mammoth Real Estate Q&A appears in the Easter Weekend 2023 issue of The Sheet.
Q: I keep referring back to your past Labor Day column and why the Mammoth market may be a little more resilient to a real estate crash or poor economic times. That was almost 8 months ago and a lot has happened since then. So please give us an update?
A: For Mammoth, a crushing record winter has amplified the old adage that “all real estate is local”. The market reaction can be both negative and positive to all of the participants. Good snow always ignites the local market in positive ways. It is a ski resort after all. But the overwhelming volume of snow has plenty of downside too and it will generate a variety of different responses. We’re just beginning to see how all of this may shake out. And admittedly, we are also in the midst of a rather crazy and confusing flow of macro economic news.
All told it still comes back to the basics; inventory (supply), buyer demand, and mortgage interest rates including fluctuations in the lending environment and mortgage qualifying. Most of these factors haven’t changed much since the end of last summer, but with some minor and perhaps significant influences (more on this later). But let’s talk about the impact of this record snow (and cold) winter season.
The winter of 2023 will prove to be a very expensive winter for most/all Mammoth property owners. Many of the large expenses have already been passed along in the form of HOA special assessments, or necessary (and costly) roof shoveling episodes, extensive trucking of snow both from residential and commercial properties, a large variety of physical damage to properties, a multitude of insurance claims, etc.. But more will come. The brutal winter conditions have also caused loss of revenue for many Mammoth businesses and STR property owners. Maybe the awesome spring conditions will bring high levels of tourism and the chance to recoup some of the lost revenues. And help pay for all of the additional expenses.
As the snow starts to melt (and it will), more adverse conditions may occur. Mammoth can have very warm spring and early summer periods and all of the snowmelt can cause tremendous runoff and flooding. Structures that have been “leaking” can be problematic with a variety of issues including internal damage. But as the snowpack recedes the “hidden” damages start to show. And they can be extensive. And sometimes not. (I keep saying that it is a great time to look at local real estate to evaluate the impacts of an almost “worst case scenario” of snow volume and resulting impacts.)
Some of the heavy snow related expenses are now being impacted by the inflation in labor and services. Snow removal is very labor intensive. Much needed roof shovers have been paid a premium rate the past few months. Some of it is supply and demand. Some of it might be considered gouging. Most of it is a byproduct of property managers insisting that the shovelers are working under licensed contractors who are properly insured and bonded. The days of old with an assortment of hippies, cowboys or climbers jumping on roofs for quick cash payments are coming to a close.
All of this expense, and the simple exhaustion and hassle of a big winter, has historically driven local residents and second homeowners out of town. Many years ago I observed that “30 winters or hitting 60 years of age” was often the breaking point for many. Mammoth winters can be psychologically challenging. But the extreme winters are especially arduous. While the IKON pass holders come in droves and revel in all of the snow, constantly dealing with crazy amounts of snow has “broken” many residents (I’ve been there). Why do you think local residents move to Crowley Lake and Bishop? And from what I hear the winter of 2023 has those in Crowley who “moved out of the snow in Mammoth” wanting to move down to the Owens Valley.
If history is correct, all of these factors are going to produce real estate sellers. Or not? We’ll just have to see. New inventory will certainly be welcome by the buyer pool and the increasingly hungry real estate community. But the timing for these new sellers to place their properties on the market is not precise. Some may “rush to the exits” underestimating the potential demand that may occur later in the year (the anticipation of another big winter). Others may want to wait until all of the snow melts and the property is more presentable, especially if there are desirable summer features that aren’t visible today or in the immediate future. Others have damage issues that may take months to get rectified. Marketing properties in a compromised condition is never good, even with promises that the work will be completed (good luck).
Historically the inventory in Mammoth, both homes and condos, rises during the late spring and summer and peaks around Labor Day weekend. The fall has been the traditional hottest selling period. All of the online listing data has changed this somewhat, but potential buyers are looking all of the time, even when properties are completely buried like now. How all of this snowpack impacts this traditional cycle is anybody’s guess. There is likely to be a small rush this spring and then a delay of new listings as owners wait for the snow to melt-out and the properties are prepped for quality marketing. The buyers too will feel more comfortable because they can actually “see” the property. But for now, the inventory remains low and there are plenty of frustrated buyers watching from the sidelines.
Speaking to the current inventory and recent sales, properties in good locations (or good projects) that are well presented are selling quickly. The more modern, polished, or “turn-key” the property, the more likely the listing will generate multiple offers and likely an overbid. Properties in lesser locations and in need of upgrades/repairs are being negotiated downwards in selling price. Sellers with good properties are reluctant to make major discounts unless there is some strong underlying motivation. The dance between buyers and sellers continues to normalize because this is how the market should be functioning. I expect this trend to continue for the balance of 2023.
Meanwhile most for these potential buyers are watching mortgage interest rates which are most tightly correlated to the U.S. 10-year Treasury. The buyer pool is coming to the realization that the glory days of mortgage rates in the 3% range may never be seen again. Most are hoping for the return of rates in the 5% range. (Interestingly, these ~3% mortgages from the past few years are an important supply side issue too. These loans are going to be hard to sell/walk away from by any potential seller, or they could create added value for a seller by offering creative financing opportunities.)
For now, the fluctuations in the 10-year Treasury are being impacted by the attractiveness of the higher rates in dubious economic times. Many with investable cash are considering it a good place to park dollars, both for the short term and potentially the long term. Add in bank deposit jitters and money is flowing into these Treasuries driving the yields down and mortgage rates with them. And the banking unease alone could drive buyers into the Mammoth market looking for a place to park money, especially if an owner can generate cash flow and have usage.
The massive winter and teetering economic times could make for strange bedfellows. And continued inflation is playing its role. Many financial pundits are advising to get into hard assets, including real estate. Inflation is hitting the actual replacement value of improved real estate, and few are talking about it. It is no wonder insurance premiums are out of control. We’ve already seen the rise of material costs (and availability) but the newer inflation in labor and services will only pile on top. In my mind, quality, well-maintained properties in good functioning condition are only going up in value. The current prices may not reflect it, but they may soon.
At this point, inflation and real estate values are becoming a double-edged sword; while replacement costs are rising, so are maintenance costs. The rising maintenance costs could be a driver for more inventory. But the affluent (the Great Mammoth Reset) may be even more driven to putting their money in hard, inflation hedged assets including Mammoth real estate. The Town itself may be a classic example of playing with this double-edged sword. Their Ice Rink and housing projects have to be (are) horribly over budget by now. And the future maintenance projections are skyrocketing too. But it might be now or never. Add in higher interest rates and projects like these could soon become financially infeasible.
One of my favorite financial gurus recently presented some graphs that could have profound implications for Mammoth. They have to do with disposable income. And Mammoth is driven by disposable income. The first graph shows that Americans have twice the disposable income that they had in 2005 (non-inflation adjusted). But the second graph shows that at the start of the Great Recession, mortgage balances were approximately $9 trillion and that represented 85% of the available disposable income. Today, mortgage balances are approximately $12 trillion but that only represents 65% of disposable income. This is significant compared to 2008. Based on all of this, IKON Pass sales should be great, and maybe pitchers of beer too.
And lastly, Fannie Mae has recently changed some of their computerized underwriting and I like to refer to it as “computer mashup qualifying”. Buyers looking for STR properties can now switch to investment purchase loans and include the projected rental income as part of their qualifying. The computer (Mr. AI) reviews all of the buyers financial factors, adds in the projected rental income (another AI operation), and each borrower file is approved or disapproved on an individual basis. As long as the buyer/borrower is sound, what could go wrong? This new qualifying alone, on top of everything else mentioned here, could fuel a new surge in STR buyers.
This past winter is certain to be transformative in many ways. And it will take time, maybe years, for it to play out. Hopefully we can all look back and find something positive about surviving the winter of ’23.