Mammoth Lakes, CA

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Broker’s Report, Oct 25––This time last year I returned from a fishing trip and reported cold water in the Pacific Ocean along the Baja coast (my conjecture back then––La Nina). This year it is completely different. Water temperatures in the same locations are 10-15 degrees hotter this year. We can only hope this is an El Nino type pattern and will result in a wet winter. Mammoth is currently experiencing a fabulous “Indian summer”­­––warm days perfect for recreation and brisk nights worthy of a fire in the fireplace.

Upon my return I realized I owed my readers a Broker’s Report more than a fishing report, so here goes…Being away from my desk for two weeks seems like a year but it doesn’t take me long to get back to speed when all the characters pour into my office begging for fish. Besides all of the national news events, I come back to local reports, rumors, and information of all sorts to process (I’m glad I missed the fist fight!). Mammoth is truly (once again) experiencing the pre-winter, no-snow-on-the-ground, stressed-out, recession blues. Lots of us have been through this in the 80’s and 90’s so it’s really no big deal. Go chop some wood, go for a bike ride or a hike, try to go fool a big brown, or simply leave town.

Two weeks of play means a week of serious catch-up, and I came back to five new REO properties on the escrow board. So what is the market really doing? There is certainly REO craziness; multiple offers, “highest and best” counteroffers from banks, pissed off potential buyers, posers and losers, and all sorts of hot water for those who can’t read, listen, or comprehend the rules of buying a REO (does your agent have a clue?). And the preponderance of the foreclosed properties continues to be condos, new and old.

The balance of the market has some activity, but for the most part listings now have to be competitively priced with the REOs. The recent stock market fall has queered a few transactions––buyers with falling net worth’s just get a little nervous (and you can’t blame them). And the concept of “wealth redistribution” isn’t going to help our market. Other transactions have come apart at the last minute due to financing glitches, and most likely other financing could have been attained through another lender but the buyers are walking away frustrated, or simply hesitant.

Reality is the local market needs the election over, the financial markets to stabilize (somewhat) and a few big snowstorms. In Mammoth, there is nothing like a good day of skiing to push buyers off the fence. Deep discounts in list prices don’t hurt either. Right now the condo inventory is down (with still plenty of Westins to choose from), single-family inventory is up slightly with the only real price reductions coming in the $1-1.3M range and $2-2.4M range, and lots aren’t selling at all except in the Bluffs at significant price reductions.

Meanwhile, Mammoth is heating up over the upcoming local election. Measure “K” is an $85M school bond initiative, mostly allocated to rebuild the high school. The whole thing is becoming more divisive than I though it would. For people with kids it is a slam dunk vote. Renters are probably indifferent. Jerks like me with who own property but don’t have kids scratch our heads and try to figure out what’s best for the community. (Anybody got a real cost/benefit analysis?) And locals who have been around know how poorly the last school bond funds were managed by transient, “where are they today”, school officials. But what I really wonder is how all the second home owners feel about it, after all they will be paying a large chunk of the bill and receive dubious benefit. It’s a tough one, maybe it would be more palatable if the dollar amount wasn’t so high, or maybe if they were tying to solve the housing issues for quality teachers, or simply admitting that fancy buildings themselves don’t equate to a better education. I usually vote against such smugness. Do they even teach reading, writing and arithmetic anymore?

On the topic of property taxes, you just received your new bill. The forms for Prop. 8 requests for assessment reductions can be obtained at the Mono County Assessor’s office at 760.932.5510.

The next area of hot water to report is for residential landlords. Vacancies are at an almost historic high. Nobody keeps records for this here in Mammoth––just my own empirical observation, which can sometimes (ha, ha) be more accurate than raw data. This is all the cumulative effect of the affordable/employee housing built over the last few years, the disappearance of large construction crews in town, more locals’ home ownership, more specu-vestors in long-term rental pool to generate cash, and the general economy. This could be a great season to be a ski-bum, so for all you unemployed boomers or unmotivated GenXer’s, here’s your perfect chance. Be careful though, it can be intoxicating.

For those buyers who walked and defaulted on their Westin Monache deposits (10%) in the last year, the answer to the correctness of your decision came through late this last week. The first two re-sales in the project are recorded––one at a 15% haircut, the other at 25%. Both were cash purchases and likely the same buyer. (Financing is only available for billionaires.) Add up the carrying costs, the selling costs of another 6-8%, and add back in a trickle of income, and you have your answer. Sellers may even be lucky enough to get a supplemental tax bill after the close!

While I was gone they had a nice ribbon cutting at the Mammoth Airport terminal and a Horizon Bombardier made a flight from LAX to Mammoth for good will. Let’s hope this all goes well starting Dec. 18. And for a select few of you I may be available to come down in my truck and pick you up––it’s a long walk. And the drop in gas prices may end up being Mammoth’s salvation this winter.

That’s all I can take for now­­––my head is still somewhat in the tropics. I need to get back to work before I’m in more hot water with my clients. My next post should be something new, a new feature that I hope will add even more value to this blog. Stay tuned. Damn, fresh wahoo tacos sounds good for lunch.

Thanks to all who read and comment here.<!--EndFragment-->

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Real Estate Q&A August 2008

Q: As relatively new Mammoth locals, we’re weighing our housing options. We can qualify for Mammoth Lakes Housing properties and have been sensing that regular rentals rates are coming down a bit. But we really would like the chance to buy something. What’s your take on opportunities for locals to buy in the next few years?

A: To answer this question we need to visit some changing market conditions. Let’s look at rents first. Residential rents are the underlying driver in the decision making process to buy or not for many people. Many locals bought homes at opportune times in the 90’s and hedged nicely against increasing rents. They bought in the whole spectrum of properties from $35K condos to fourplexes they call home.

Mammoth rents escalated significantly in the past ten years due to rising demand and increased market values. Part of it was purely economic as Mammoth bounced out of the economic depths and doldrums of the 90’s (it really couldn’t have gone much lower––some properties were “almost free”). Part of what drove the demand was the large workforce building new properties. (Why do you think so many see the Clearwater project as an immediate panacea to our local economics?) As we’ve learned it’s just a short-term phenomenon, albeit a good high. Another sneaky, but real demand driver was the creation of the Value (ski) Pass. Many new season pass holders (30,000+) figured that a seasonal rental (or ownership) was an automatic part of the program.

But while demand has been curtailed (at least for now), supply has risen on many fronts. Mammoth Lakes Housing has developed and impressive number of “affordable” units for both owners and renters. The Ski Area has built new employee housing projects and bought a bunch of condos along the way. Even the college now has housing (and very nice too!). But what has also increased the current supply is a core of owners who bought in the past few years and for whatever reason––from just needing cash flow to not being ready to re-locate or retire yet––have thrown their properties into the rental pool. And there will always be very high demand for winter long-term rentals of 4 to 8 months at premium rates. All in all, rents have become somewhat more affordable in the past 18 months, but only time will tell whether they stay there.

So what about the affordability for buyers? The good news for some (those that want to buy) is prices are coming down. But each segment is different. The bad news is that financing has tightened, but there are still loans for responsible people especially if you have a down payment. There are still good loan programs for first-time homebuyers. Right now a dozen or so foreclosures are spotting lower prices in the market. But not all of these foreclosed properties are attractive to or geared for locals. But at the right price they might be. The bigger question might be what types of properties may come available in certain prices ranges.

One segment of the market and price range that remains fairly stable and price supported is single-family homes in the $700,000 to $900,000 range. I’m not saying it’s hot like three years ago, but there are ready, willing and able buyers in that segment. But many of these owners/sellers are still holding out on higher prices. If a listed price drifts downward there is usually a buyer somewhere along the line. The point is I don’t see these homes coming down into the $200,000 to $300,000 (or less) range where they were in the mid-90’s. And if they did there would likely be investors competing to buy them for rental properties. Like many mountain resort towns, quality middle-income housing in Mammoth remains a big problem. It needs to become the new focus of subsidized housing or else the town will always have difficulty attracting new teachers, nurses (even doctors), middle managers and the like.

We are seeing some home pricing down below the $500,000 mark, but these properties usually have some serious compromises––location, age, etc. If they go much lower (say by another $100,000) I suspect there will be plenty of buyers. And I’ve been watching home values in Bishop (planning for my older age) and there are some nice homes in the mid-$300,000 range down there. A couple of big winters will always make that look attractive.

Then there’s the condominium market. Back in the mid-90’s when I sat on the Town’s Housing Advisory Committee I was intrigued by what would happen to all of the aging condos as Mammoth pursued the goal of becoming a world class destination resort (and building lots of new and modern condos). I did my own study and identified the condo projects that I felt would transition to local’s housing as opposed to remaining second-home oriented. (Remember, at the time values were at an “almost free’ state.) My study came up with approx. 2,000 condos that I felt would become more permanent resident oriented. Much of it has come to fruition in the past 12 years. A quick drive through certain parts of town and it becomes obvious. This is valuable housing stock that many resort towns would die to have. And now as values backslide, there will be new opportunities. And as has happened in the past cycles, maybe some old owners will be willing to owner finance (and maybe Barack will influence that).

The problem with some of this old condominium stock is exactly that: age. Most of these projects have or are facing large assessments for much needed capital improvements. But whether anybody realizes it or not, the second homeowners who have, or are, paying most of these assessments will help locals get into older but remodeled and well maintained housing in the future. So for prospective local buyers, good timing and analysis can make for a quality purchase. Reviewing the Homeowners Association information, including financials and reserve studies, is a boilerplate contingency in condo purchases. But having an idea of where a project is in their capital improvement program and funding is essential to the successful shopping process. Ultimately, I don’t think we’ll get back to the “almost free” values in Mammoth, but there are and will be good opportunities for local residents to buy in at affordable prices.

As we are learning in this current cycle (especially with the foreclosures), is that some people are just better renters than owners. Those people should remain renters. But as I’ve witnessed so many times before, owning one’s own home gives you a completely different attitude towards the community in so many ways. An old axiom of public planning is “home ownership makes mayors of all your citizens.” I think we can always use a few more mayors in Mammoth. Mayor Wood might even agree to that. <!--EndFragment-->

Asleep At The Wheel? Q: In a very recent column you stated that the spring buyers “have exited for the most part and there won’t be any volume of buyers looking until late summer”. I was told from somebody in the industry that business was picking up. Can you explain your perspective? A: Since the year 2000 there are clearly two primary selling seasons for Mammoth real estate. There has always been a pre-winter push driven by the anticipation of skiing and positive rental income. The other busy and productive period has become the late winter/early spring when Southern California families are here for extended vacations. Those weeks are more spread out due to the schools being on “tracks”. During these weeks there is no rush, no “weekend warrior” mentality. Mom and dad (and grandma and grandpa) relax a bit and can spend some quality time looking at real estate. So with the spring break period over, the ski season winding down, and thoughts of the beach and the River on people’s minds, the Mammoth real estate market historically takes a pause. And yes, there will still be some buyers poking around and Fourth of July always brings great expectations, but as I said, I wouldn’t expect any volume of buyers until late summer. But it is an important time of year for real estate types. Our minds go from skiing and snow management to summer sports and landscape and repair. The contractors are already moving here in town and Mammoth puts on a delightful face for summer. But here’s what is important––between now and Labor Day the inventory traditionally moves up in numbers. This typical increase in inventory will once again expose the real sellers from the not-so-real sellers. For me, I’m paying attention to the possible “gems” that may come to the market––those really choice properties that are prized and few-and-far-between, or the really good buys of quality properties. And some that after 90 days or so of marketing may become good buys. Again, for market watchers it’s an important time to observe. So the inventory is going to increase?? Let’s look at some of the current numbers. But let me first state that there are dozens of properties that have been listed in the past 12 months that have expired or been withdrawn from the market. Many of these listings won’t reappear. This is characteristic of the Mammoth “don’t-have-to-sell” market. As of this writing there are only 65 homes listed for sale––a relatively low number. Some are very attractive high-end homes and have been on the market for years. And some are really the dregs and their owners are still living in a Starwood induced delusional state. I think some just like the attention of a (pretty) Realtor®. We’ll see some newcomers to the market, some rehash, and maybe even some price reductions. I do know thing, in this market segment there are lots of folks (wannabe buyers) watching. And as I drive around the neighborhoods this spring I see some major remodels starting. The condo inventory has been sitting right around the 300 mark for some time. Over 10% of the condo inventory is in the Westin Monache. Another 10% is condo hotel product in the Village, and another 10+/-% is in the Snowcreek Phase 6 (The Lodges) or in Intrawest or other developer’s new inventory. That leaves about 200 of the regular old resale condos in the today’s inventory. Again, this is in no way excessive from a historical perspective. The bulk of the truly motivated sellers are those that bought in the 2004-06 timeframe, and typically bought with 100% financing (with rapidly increasing “toxic” payments). Many of these owners will simply end up in foreclosure and those properties will end up being good buys for someone else. Oh, and there are a few motivated sellers who just couldn’t resist refinancing every penny out of their properties at the height of values. And as we head towards the second half of 2008 there are some interesting unknowns and uncertainties that may generate activity and some good buying opportunities. The first is the Presidential election. God only knows what could happen. While one candidate proposes raising the capital gains tax, a backlash of support arises for eliminating it for a window of time to stimulate the economy. Capital gains taxation is a serious underlying driver for Mammoth real estate––both in and out of the market. And yes, tinkering with either way will have ramifications. And what about mortgage rates? Who knows? Those buyers with down payments and good credit can get loans. Appraisals have been unpredictable––some higher, and some lower than expected. Some appraisals have queered transactions. Some have made sellers renegotiate. But the mortgage rates have been bouncing around almost arbitrarily. Now is an even more important time for buyers to have a top-notch mortgage professional working for them. Yes, a seasonal lull in buyer traffic is all part of the sales cycle here in Mammoth. The sales push for the Ritz is having nominal, if any, effect on the balance of the market (not like in the past where these sales efforts created whirlwinds of activity). Serious market watchers will be perusing their favorite search engines and watching their segment of the market. I can already see a big difference coming between some segments. It’s all about supply and demand. In the meantime it is time to finish off some spring skiing, get the bike tuned up and maybe even think about a trip to Mexico.

Broker’s Report April 16––In the spirit of keeping this from sounding like the Broken Record Report instead of a fresh Broker’s Report, I will digress somewhat this time around, but hopefully produce something worth your while. For those serious market watchers who want immediate information, here it is; the Mammoth market has, for the most part, returned to a stalemate between buyers and sellers. Some significant price reductions have brought transactions. But most sellers have dropped back into passive mode. A half dozen or so are slowly heading into foreclosure. And some have their fingers crossed that a short sale is possible. The typical spring break lookers and buyers who spread out over the weeks of the So Cal school breaks appeared and were bargain shopping. They have exited for the most part and there won’t be any volume of buyers looking until late summer. Many of the shoppers in the condo arena were not only looking to low-ball offers but were also looking for income histories. (It appears that some agents have returned to “income production selling” in the condo market––enough for broken records.) So let me digress. Over time I pile up what I think are tasty bits information from various sources that apply to what is happening in Mammoth and the real estate market. Some of this information flows to sales meetings and some to the trash can. But some stick. So here is some of what I’ve dug out of the stack. The April 14 edition (this is a fresh one) of FORTUNE magazine on page 30 reports “The Luxury Recession”. “Purveyors of high-end goods and services––normally insulated from economic slowdowns––say they are starting to register a sharp downturn in discretionary spending.” Bookings at the Leading Hotels of the World are down 10% in 2008, high-end steakhouses are replacing prime cuts with lower grades of meat, retail golf sales are down, yacht sales are down 50%, and private Pilates classes are making way to group classes. (I just wish I had the guts for a Pilates class.) All of this may be good or bad for Mammoth and its constituents, depending if you’ve bet on the uppity future of Mammoth or the down-home inherent qualities that have always been and always will be. (The Place to Be Is Already Here?) From the New West Network on April 1 (this was no April Fools’) titled “Credit Suisse’s Troubled Rocky Mountain Empire”. The article speaks to the failures at the Tamarack Resort in Idaho, the Promontory Club in Utah and the Yellowstone Club in Montana––all new high-end (mountain) resort developments. What all three have in common is that international banking giant Credit Suisse is their primary financier. Tamarack is in bankruptcy and they are in default of their $250 million loan and Credit Suisse is trying to foreclose. Promontory is also in bankruptcy and owes CS $275 million. The Yellowstone deal is more convoluted and a little higher in profile. But the celebrity clientele is bailing on the half finished project. The CS loan there is $300 million. The article states “It’s impossible to know whether Credit Suisse was a foolish lender that’s about to lose its shirt, or a shrewd deal-maker that’s about to pick up some valuable properties for a song.” I wonder if Credit Suisse has a quarter-billion dollar loan on Mammoth? But my “take away”––there is an obvious limit in the demand for luxury mountain resort product. This should continue unless the dollar becomes so worthless that the rest of the world considers basement pricing for the luxury experience. And ultimately the resilience of Mammoth is its ability to consistently do numbers. Around town I am hearing a recurring theme. Old time locals like Steve “Bearman” Searles and Town Council candidate Chris Tolley are among those that have barked at me “We want our town back.” I ask these people what that means. Their responses are thoughtful. They think about the way Mammoth was in the 80’s and 90’s. Times were tough economically but there was a much greater sense of community. (We were all in the lifeboat together.) And there was no mania. They express they aren’t opposed to growth and development. They just don’t like the circus, the transient egos and short-term thinking––the sell-out to corporate carpetbagging. It reminds me of the old saying “Be careful of what you ask for.” But what they’re asking for is happening. Mammoth’s own form of Darwinism is resurfacing. (Darn, gorging at Nevados is so much more fun than picking over the sale items at VONS.) But I digress. Back to real estate and some of my random observations. The Westin will epitomize this past era of excess and speculation. The currently listed inventory at the Westin Monache represents 10+% of all the Mammoth condo listings. I’m aware of many second phase defaults (and buyers walking away from their 10% monies) and now it appears they are holding back at actually re-listing the properties––the MLS as of this week reflects, “contact…for further information regarding developer product inventory.” And one local attorney has pointed out to me the developer’s Civil Code responsibility to those defaulting buyers. This creates just one more quandary that will only be exacerbated by the coming months of the rental income black hole. Buyer beware, phantom inventory is greater than ostensible inventory. Another growing complaint is the “trust” many Mammoth buyers (2005-07) put in the Starwood acquisition. That trust has dissipated to nothingness. I guess we’re lucky the chairlifts keep running. A broken down Branding process, no new lodge at Eagle, no Village parking lot, no ski back trail, no “1”, (although the new Chair 9 is very cool albeit a very questionable investment in relation to other needs), no nothing really. Oh I forgot, fancy LA food on the Mountain. The airport may be ready just in time for fuel prices to crush the airlines. And all hope is now left to some newcomer Cowboys to put on the Ritz, pump the Town coffers and keep the trickle of momentum going. The only things we can really trust in are the God given qualities of Mammoth. It really is starting to feel like the 80’s and 90’s again. Oh there’s that broken record. Maybe we should just brand it Broken Record Mountain. Meanwhile, it is time to renew your MVP or buy an April discount Gold pass. Get a SUV hybrid with DVDs in the back for the kids. If you ever planned on building or remodeling in Mammoth, now is a great time. The contractors are waiting. Clearly there are many waiting-in-the-wings buyers for Mammoth real estate. But there is no pressure other than life’s clock. I don’t know how to respond to so many who want to own a piece of Mammoth but to just sit back and see where all of this is going. My answer is I’ll just do my best to keep you apprised of the market. I’m watching and analyzing every day. But don’t mind if I take some time and go skiing, go hike or ride the bike or go fishing on the Pacific. All of this will sort itself out. Meanwhile, keep an eye on the deal for the Main Lodge property. That land belongs to the public––that’s you and me––we’re the sellers. And the Feds haven’t proved to be good fiduciaries. And you know what that gets you. Skip, skip, skip…

Foreclosures are reaching record numbers in many real estate markets, some to the extent that foreclosure numbers are exceeding actual closed sales. Seeing those kinds of statistics can be shocking. Clearly, the values in those markets will be greatly impacted by the volume of foreclosed properties. That is why I have been intensively watching and reporting on that segment of the market for the past 18 months. But all appearances are that the Mammoth Lakes market will be different. Not that it will remain unscathed, but foreclosures will not be the foot-on-the gas of a downward spiral in values. After an early year push of a half dozen well priced and attractive lender owned properties, we have hit a lull. But there are more properties in the pipeline. Part of the lull was created by a moratorium of sorts––a farce government intervention that the lenders went along with because they were so backlogged anyway. (Oh, the things that will happen in an election year.) And we’ve been lulled by other delay tactics. Short sale attempts are causing lenders to forestall Trustee’s Sales. And pseudo bankruptcy filings (and some real ones too) are causing delays. And there are some squatters and other random salvation attempts. But even at some future peak I don’t see foreclosure numbers even being a small fraction of the sales here in Mammoth. Each one of these pre-foreclosure (Notice of Default filed) or actual foreclosed properties is a story unto itself. Some are truly unfortunate, some are like soap operas, some reek of fraud and dubious dealing, and some were simple gambling on the Mammoth craps table. Most are a result of a series of poor decisions. And it is somewhat disconcerting to see certain local agents repeatedly appear as the agent who represented the owner in their purchase. The process from actual foreclosure to bringing the property back to the market can vary greatly depending on the lender and the property. Some lenders are directly overseeing their REOs (“real estate owned”) through their own asset management companies. Others are using clearinghouse and sub-contracted companies. Soon after the properties are foreclosed on the status of the property needs to be assessed. If vacant, the locks are changed, no trespassing signs posted, utilities switched over, etc. Properties with personal property remaining need special care. If the properties are still occupied then the occupants need to dealt with according to the new owner’s policies. Oh, and there’s a million forms to fill out. Eventually the property will be listed on the open market (no insider deals.) And that can take anywhere from a couple of weeks to several months. The marketing and subsequent sale and escrow are handled similar to any other sale and escrow except that the buyer must be pre-approved (but that is becoming standard in the day-to-day business too.) The critical thing for a buyer is that unlike buying straight at a Trustee’s Sale, the buyer of a REO gets to complete all their inspections, including physical inspections of the property as well as matters affecting title and any Homeowner’s Association related documents. The buyer and seller also pro rate expenses like property taxes, etc. For buyers trying to understand the whole process, it is much safer to purchase a property as an REO rather than at a Trustee’s Sale. And so far in this cycle the prices are lower too. That’s because the lender prices the REO to sell––usually slightly below the market. The REO pricing has nothing to do with how much the previous owner owed on the property. We’re getting a glimpse of some other things; the Village will have its share of foreclosed property. We already have one under management that will come to the market soon. There are others in the pipeline. There are others being offered as short sales that will likely end up being REOs. (The real interesting question is when will the first Westin REO hit the market. It will be a year at least, but with the volume of buyer defaults, the number of quickly re-listed units and price reductions below the original selling price, AND the fact that we’re heading into the rental doldrums months, it is only a matter of time.) We’re also getting a glimpse at which lenders kept their Mammoth loans in their portfolios and which ones sold them off (and their servicing rights.) This is an interesting sidebar to the national and international banking crisis that we are experiencing….And because of Mammoth’s geographical location we are seeing some local REOs listed with agents from places like Fresno and Chino. And their pricing is off because they don’t know the market. The lenders grade each REO you handle so a couple of bad grades and you’ll flunk out…And while the REOs in Mammoth so far have been good buys, they still have to be compared to other good buys in the market––and we are finally beginning to find out who the real sellers are. Meanwhile, hungry agents and posers are jumping on the REO bandwagon. Don’t be fooled. Only a few months ago they were still trying to hype their favorite new development and didn’t know a Trustee’s Sale from a yard sale (some still don’t.) And they’ll likely be plagiarizing content from this column for their own promotion. (I do love the time stamps on blogs.) Now if they can just keep their names out of the public notices.