No Locals Left Behind

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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.