Mammoth Real Estate Q&A—The Crash of 2024?

This Mammoth Real Estate Q&A appears in the President’s Weekend 2024 issue of The Sheet.

Q: We were predicting a local real estate crash back in the summer of 2022 and you made all of the arguments for why it wouldn’t. So have you changed your mind for 2024? Where are we now?

A: That seems like a long time ago. Many of the points in that column called the Great Mammoth Reset are still applicable. The global and macro picture does look even more precarious, and outrageous government spending makes continued inflation almost a given. We are all at the tables in Las Vegas. And the dice have to be rolled. Let’s look at some of the unique local conditions and dynamics that could influence this market both in 2024 and beyond.

The inventory is almost always the most telling measurement of the market. And I’m always keeping my eye on any signs of stress in the market. There is currently no distress in the market except for homeowners who were crushed (including the emotional crushing) by the massive winter of 2023. It appears that the last of these sellers have just now got their properties in a repaired and cleaned-up condition to put them on the market. The rumors of another big winter had some of them in a near state of panic. Property damage was pervasive but has been substantially repaired. The mild winter of 2024 is now allowing them to get to the market in reasonably good condition. 

Any owners who find themselves in financial distress can easily go to the market and liquidate. Right now the market conditions have made it almost impossible for any owners to be “upside down.” Regardless, the inventory is far from exploding, and the trend is quite the opposite. The single-family inventory has been sitting at just less than 20 units. The condo inventory comes-and-goes but has been sitting at 50-60 units. New, attractive listings don’t last long on the market.

For decades the true local market watchers also look to the health of the Southern California economy as a barometer. Those of us who were around in the early 1990s know how true this is. The hit to the SoCal economy, including the closing of major military bases, stagnated the Mammoth market for almost a decade. Today, the SoCal economy and the real estate markets remain strong.

What is currently selling in Mammoth??  The sales are really through the whole spectrum of the market. The Westin Monache units that seemed stagnated in the past couple of years are selling well in the winter of 2024. Condo hotel units on balance continue to be popular. Luxury homes continue to sell and homes listed on the low-end of the price range always draw significant interest—at least lots of “looks” online. There is interesting price discovery in this segment of the market based on location, size, condition, etc.. 

The RMF-2 zoned condos may be somewhat stalled, likely due to the local government meddling in the economy of this segment and the resultant uncertainty. But potential buyers are getting a clearer vision on the reality. It may be creating some good opportunities. Properties in places like Snowcreek and other Resort zones remain quite attractive and active. The surprise segment is the continued demand for single-family vacant lots, which “they aren’t making any more of.” 

Vacant lots are an interesting segment of the Mammoth market. Some buyers are anxious to build, and some are buying for a more long-term holds. The post-Covid era has been the strongest vacant lot market in decades, and maybe ever. Building a new home on these vacant lots remains incredibly expensive, and patience is a critical virtue. The very limited multi-family (apartment) properties that come to the market are typically bought-up quickly, even if in marginal condition. All-in-all the market volume is slower, but there is continued supply and demand balance.

Higher mortgage rates continue to impact the transaction volume but there are still plenty of cash buyers into the Mammoth market. Rates are about about one percent higher from that 2022 time frame. Some potential buyers are on the sidelines seeing if the Federal Reserve will somehow stimulate the rates lower. It might be a long wait. Or not. It is much like predicting how much snow will come in the winter. And speaking of snow, I was thinking back about the decades of big winters, drought winters, strong real estate markets and weak real estate markets, and I find no correlation of snow volume to the direction of the market.  

Something that wasn’t so clear back in July of 2022; during the Covid experiment period we might have lost sight of the true demand for skiing and snowboarding that the IKON (and Epic) Passes have created. The saturation of these passes into the general population have driven incredible demand. I especially see the increased demand on fresh snow days and during the midweek. This demand does not appear to be waning and our ties to SoCal are making it even more intense, and prolonged on both ends of the season. This has become a “for better or for worse” scenario. It is good for business including the real estate business, but the wonderful days of having the Mountain to yourself are long gone. 

That said, the Mammoth community, whether it realizes it or not, continues on its journey of seeking the “quality versus quantity” goal of resort operation and lifestyle. Demand is so high that it has become the natural progression (until it gets screwed up somehow). And we’ve learned a lot of lessons about all of this in the past few years. The Town’s thirst for more tax dollars may inadvertently be pushing this quality not quantity momentum. It will inevitably push some visitors (and buyers?) out of affordability (or maybe into more winter dispersed camping?). And it may all be part of the Alterra “Aspenification” plan for Mammoth. All of this should certainly continue to drive the local real estate market. 

One thing that has changed since that 2022 column is the talk of having a “Plan B.”  The concept of “movement” and The Great Reshuffling was on the minds of many back then. This has settled down. Some people have actually had to go back to the office. Many have gone back to some level of normalcy. Humans have very short memories. But a “rural trend” continues demographically. 

Years ago there was a retired cement contractor from Mammoth who used to come and sit in my office and pick my brain about the market and real estate ideas in general. What I found so fascinating about these discussions is that he was originally from New Zealand. He was rather emphatic that the eastern Sierra was the most beautiful and protected place on the planet. Interesting coming from him. He had been back home many times and always wanted to come back here. He considered the corridor from Lone Pine to Minden/Gardnerville or Carson City to be “it”. Find your spot(s) and enjoy life in paradise. 

The problem? Private ownership of land in this corridor is very limited. Government or quasi-government ownership amounts to about 95% in most of the corridor. And there is actually a reversion of land ownership happening—more land is returning to government ownership and stewardship than moving to private ownership. And there are continued efforts for land exchanges and conservation easements in the corridor. 

And while there are cool little communities and nooks-and crannies to be found, Mammoth Lakes stands as the pinnacle community in the corridor. The outdoor recreational opportunities, the four season desirability, the local services including markets, hospital, restaurants, a variety of accommodations, and on-and-on make it unparalleled. And reliable air service in Bishop has stabilized that long-standing quandary. There is no doubt an increasing number of people will be seeking refuge in the corridor. I’m betting that the summer of 2024 alone will bring even more demand and enlightenment.    

This demand will only exacerbate the shortage of affordable or workforce housing. Our local officials and leaders will struggle with it just like those all around the planet who are struggling with it. The current solution de jour is attacking the short term rental (STR) properties within communities for creating the imbalance. There is ongoing debate, discussions, mandates, moratoriums happening from Europe to Hawaii and beyond. Each community has to deal with the legalities and conditions of STR brought on by the popularity of online booking platforms like Airbnb and VRBO. And balance it against the revenue they are so addicted to. It is a classic Catch-22 scenario.

Here in Mammoth we have over 6,500 units legally available for STR. This is signifiant. The recent fad of attacking these properties as the blame for housing shortages is increasingly controversial here in Mammoth. But these circumstances have existed for decades. Except today, massive marketing expenditures, IKON, and more have driven it to the brink. Our leaders need to find other solutions, and they exist. And they shouldn’t be so arrogant to think they can completely resolve the issue, the problem is almost everywhere. And they can’t take the blame for past leaders kicking the can down the road.

All of this is becoming reminiscent of a time in the past when the Town Council was convinced they could ignore the terms of a development agreement. That didn’t work out so well. We have paid dearly for it, and still are. Let’s hope intelligent minds prevail. Ironically, that project originally had proposed “missing middle” housing incorporated into it. The law of unintended consequences can be punishing.

The thing that is etched in my brain over this ongoing housing topic is the 2010-2016 era. Many of the organizations, business owners and individuals themselves who are today squealing for affordable and workforce housing had the opportunity to buy all sorts of properties at rock bottom prices. And interest rates were low. It wasn’t that long ago. The cycles and psychology of real estate are indeed fascinating, and sometimes painful. But blaming the people who do own properties for the woes of those who don’t is a sad state of society.

Meanwhile, what happened a year ago and what has happened since has also proven the resiliency of the Mammoth community. Big winters always shake-out some of the community (including some of us heading into old age). Dealing with the damage has been an administrative nightmare and some of it is still unresolved. The extra manpower needed to get the job done was considerable, especially considering manpower is inherently short in Mammoth to begin with. The weather cooperated on the back end. The community as a whole has absorbed most of the financial hit including astronomical snow removal bills, loss of income, repair bills, etc.. It was an immense stress test, and it looks like Mammoth passed with solid grades. 

All of this is good news for people invested in the region. The demand and demographics look sound. Supply remains short. The underlying leverage is completely different from 2008, and this is a critical difference. Those looking for a repeat of the last default and foreclosure cycle and the subsequent crash in values may end up being disappointed. I have many sophisticated clients who think Mammoth values have a long way to run, and point to the values in peer resorts as comparisons. But the world is full of surprises. The future is uncertain. And the year 2024 is young.

 

3 thoughts on “Mammoth Real Estate Q&A—The Crash of 2024?”

  1. Makes sense. Once of the risks we don’t seem to consider is return on investment. Real estate became a significant asset class with somewhat competitive returns . What will happen once currently yielding 5% savings accounts/CD will offer substantially higher risk free returns vs. real estate CAP rates?

    Reply
  2. Hi Ygy, people don’t buy real estate in Mammoth for ROI. There are many other factors, but primarily they want to be here and enjoy the huge variety of recreational opportunities in the region. There are also tax benefits that many people don’t see. If you are addicted to skiing and snowboarding, then owning a Mammoth STR helps pacify the addiction.

    Reply
    • @Paul Oster, great articles, as always. Concerning your remark about “tax benefits that many people don’t see,” it’s worth noting that while not a universal rule, individuals capable of purchasing second homes often have incomes surpassing the IRS depreciation standard of $150,000 in gross income. Consequently, for these individuals, the depreciation and corresponding tax benefits may indeed be negligible.

      Reply

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