CONDOS STALLING

Looking at a graph of $/sqft for condos sold in Mammoth Lakes since late 2011, we first see the dip down to the bottom of our recent real estate market in 2012, then an increase in 2013 that we all felt and enjoyed, and then a stalling out (and even a little decrease in Q2 2015) of prices to our current market.

When prices were increasing in 2013, it encouraged many sellers to put their properties on the market and to choose list prices that were ahead of the curve, thinking that prices would eventually catch up to them.

However, it may have backfired and soured the taste of many buyers.  In addition, the fourth year of our drought and subpar ski conditions may have put the brakes on our local real estate recovery.  It will be interesting to see if the current trend of decreasing $/sqft continues or not.

Caveats: Price per square foot is not always the best indicator of value, as there is a wide range of values.  However, when we separate out Intrawest properties (often 80% higher $/sqft) from non-Intrawest properties, we still see the same trend.  But if we break it down even further by area of town, we see that The Village, Snowcreek, golf course properties and Canyon Lodge properties are not declining in $/sqft and are actually increasing.

The other areas of town (main street, Old Mammoth, and surprisingly, Juniper Springs Resort), all peaked in 2014 and have decreased since then.  There have been a few short sales in Juniper Springs Lodge lately that may be contributing to this phenomenon.

 

 HOMES INCREASED SINCE 2012, BUT NOW AT SLOWER PACE

Tn the single family home market, average price per square foot has increased among all price segments up to $2M (see graph).  However, the rate of increases (except for the low end of the price spectrum) has been slowing since the rapid increase felt from 2012 to 2013.

 

Why?  Again, we believe it is due to the subpar ski conditions at Mammoth Mountain for the past four years.  With El Nino currently in effect this summer, everyone is hopeful that this trend will reverse.

 

 

Overall, the real estate market in Mammoth Lakes and surrounding areas has been relatively flat for the last three quarters. Prices have not changed much in the condo segment and neither Buyers nor Sellers have much more negotiating power than the other.

IS IT A BUYERS’ MARKET … OR A SELLERS’ MARKET?

It is neither clearly a Buyers’ market nor a Sellers’ market. When it is one or the other, negotiations tend to go more smoothly…

In a Sellers’ market, there are fewer properties for sale (supply) to meet the demand of a larger number of buyers.  Therefore, buyers tend to meet sellers’ demands on the price and terms of a sale.   In a strong Sellers’ market, you hear about multiple offers and sales prices going for more than the asking price.  And if buyers dare to ask seller to make any repairs, they are often left holding the bag and responsible for fixing things after they own the property. And if an appraisal comes in low, the buyers often accept it (unwillingly) and forced to pony up more of a down payment.

In a Buyers’ market, there is an oversupply of properties on the market and sellers are happy to receive an offer.  Sellers will usually come down lower in price and be more agreeable when negotiating repairs.

But when it is neither, like it is right now, we are seeing it take longer to consummate a deal, more counter offers (two to three), not too many multiple offers, and tougher/longer negotiations on repairs.  Sometimes we see standoffs between buyers and sellers; buyers think they should be catered to and sellers think they don’t need to cater to the buyers.  Bluffs are called and one side usually gives in a little bit and things can move forward.

Examples: Recently, a set of buyers made an offer at about 90% of the asking price on a house.  The seller countered back by coming down to 98.4% of his asking price.  The buyers came up a bit in price and then negotiations stalled.  The seller did not budge any more.  Eventually, the buyers came up to the seller’s price and are now happily in the home.

However, at the same time in another transaction, the opposite happened.  Buyers offered 90% of asking price.  Sellers came down less than 1% and then negotiations stalled.  Buyers waited for about two weeks and then tried again at 95%. The sellers took some time to think about it (and realized there was a chance they would not get any other offers), and came all the way down to meet the buyers’s price.

The Edge Goes To… If we had to choose, Mammoth has most recently been in a slightly Sellers’ market. One way this manifests is the average sales price as a percentage of a property’s most recent list price. This number has crept upwards for Condos from 96.3% in 2014 to 96.7% in recent months (and up from 95% since the bottom of our recent market in 2012).

Buyers were coming in with offers around to 90% of list price in 2014 and ending up at 95-96% of list price.  Lately, most buyers (other than the ones in the example above!) are coming in a little stronger knowing that sellers are not entertaining ‘lowball’ offers anymore.

When negotiating repairs, buyers are asking for more than they know will get agreed to.  On average, Sellers are agreeing to just under half of what buyers are asking for.  And they are pushing the responsibility of woodstove insert conversion (new Town of Mammoth Lakes ordinance as of 2013) onto the buyers.

In addition, condos are selling faster.  Average days on market until escrow gets opened is 77 days in the first half of 2015 versus 110 days in 2014.

 

 

Why are we not seeing the crazed Sellers’ market conditions that exist in other California markets, like Santa Monica, Newport Beach and The Bay Area, where prices are above where they were at the last bubble in 2005-06?  Maybe because those other areas are fundamentally experiencing an increase in demand from foreign investors and an improvement in job markets.  And because Mammoth has been affected by the current four year drought that has produced subpar ski conditions, which have weighed on buyers’ decisions whether or not to invest in a ski property.

How long will this slight edge go to Sellers?  Well, it can depend on several factors, like interest rates (if they rise like they are supposed to, it may force sellers to become a little more flexible in order to accommodate the decreasing buying power of buyers) and inventory (see our blog post on Patterns in Inventory).

 

 

 

 

 

 

 

 

PATTERNS IN INVENTORY

It has been a tenet of our Mammoth Lakes real estate market that inventory (number of condos and homes for sale) in Mammoth Lakes increases in late spring and decreases in the fall.

Increase in Spring: Inventory increases after winter because (1) owners of condo rental units do not make as much income in the spring/summer/fall as they do in winter, so if they want to sell, they figure they will do it when rental income slows down, and (2) single family homes tend to show better in the summer (and you can actually inspect the grounds and landscaping now that they are not underneath snow).

Decrease in Fall: Inventory then declines in the fall when (1) rental owners who have been unable to sell decide to take their units off the market and rent for another winter, and (2) there is usually a mini buying spree around Labor Day as buyers decide to stop renting and want to spend Thanksgiving in their new vacation place.

This pattern had not been steady during the wild market upswing of 2003-2006 nor the downswing in 2007-2010, probably because larger market forces (easy money during the ‘bubble’ and the subsequent sobering burst of the bubble) were overriding this seasonal pattern.  But from 2010 – 2015, the spike and valleys of our inventory has read like the heartbeats of an EKG (see graph).

The graph plots number of properties for sale, the average Days on Market (DOM), and the difference between the two.  When a bunch of properties come on the market at the same time, the overall average DOM (the blue line) goes down.  And then, when they sit for a long time, the DOM starts creeping back up.  A rapid succession of new listings (inventory…the green line) show up as a spike on the graph when one calculates the difference between inventory and average DOM (“Difference” is the maroon line).  When the difference is high, it can depict “lots of fresh listings.”  When the difference is low, it usually means “few, stale listings”

Since 2010, we see regular spikes of the maroon line occurring in late July – early August.  This is when sellers decide to sell and maximize their listing exposure during the nice weather and greenest grass times of summer.  Inventory is at its highest and freshest (lowest days on market). As a buyer, this is when you have the most choices.  As a seller, this is when you have the most competition!

Troughs tend to occur between January and April of each year.  This is when buyers are done buying properties for the ski season and inventory gets depleted.  It is also when sellers, who are thinking of selling, wait until the ‘shoulder season’ ends so that their property is fresh when the summer buyers come around the 4th of July.

It is interesting to see how steep the graph is on either side of the peaks.  On the front side, there is almost a mad rush to get properties listed for sale before the crowds of summer start visiting Mammoth.  On the back side, the buying spree in fall, combined with sellers letting their listings expire at the end of summer create a steep drop in the maroon line when inventory decreases and DOM increases.

Can’t time the market?  We are told that it is almost impossible to ‘time the market’ (i.e. buy low and sell high).  Well, you might be able to “time the inventory” and buy in the spring when choices are plentiful and sell in the fall when buyers are a little more motivated.