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This Q&A would have been timely for the February issue of Real Estate Times. But I would have missed the deadline anyway––too much skiing and snow to shovel. I think there's more relevant information here than in that entire issue. So…
Q: When you say that you "scrub" the condo inventory, walk us through your mental process of doing this and the reasoning behind the scrubbing.
A: Years ago I remember waiting for Friday afternoon when the new MLS books came out––new listings and new information. Seems like the Stone Age. Things have certainly changed in the last couple of decades. Today I watch the MLS on my computer screen like a stockbroker watches the stock market––spotting new listings, volume, trends, etc.––the action in general. Luckily it doesn't move too quickly so you can get in a few ski runs. And the rest of the interested world can watch along too thanks to the proliferation of the Internet and websites. My brain mainly processes what's selling and what's not. A new listing or a price reduction may compel further research, some discussion with fellow agents, a serious scratch of the head, and quite possibly a trip out into the field for a closer look. (Thank God I'm not forced to stay at my desk.)
The first number that my brain is watching is total number of condos currently listed. It fluctuates up and down a bit based on listings expiring and being renewed. Recently the number has been hovering around 280 to 290. The number seasonally peaks around Labor Day and usually bottoms in mid-winter. (If this is the bottom, we may have a ton of inventory by late summer.) Over the years I recall the condo inventory as low as 30 and as high as over 400. For a good decade, from about 1988 to 1998, the number sat around 335 (and there's been hundreds and hundreds of condos built since then).
Condo listings come and go, some sell and some languish for years. Mammoth is greatly a "don't have to buy, don't have to sell" market. Many owners like to "fish". Right now there are plenty of owners fishing. There are buyers in the market, but they're buying at 20 to 30 percent off of the peak. Most of the posing sellers don't want to sell at those prices. And many agents are now simply refusing to take listings at the higher prices. The standing inventory of unmotivated sellers is affecting the appearance of the market––long days-on-market and other unappealing market statistics don't help matters. Best to just get this stuff out of the inventory. The only people it helps are the owners of real estate magazines and paid-per-hour webmasters.
So then it gets down to scrubbing. The goal in my mind is to have a dozen or so "tip-of-the tongue" best buys picked out. Good properties at good or reasonable prices, or maybe some inside information. And it's important to have few "trophy" properties in mind. No lousy HOAs or substandard locations. No multiple cookie cutter competitors with stale pricing. These cherries are constantly changing because they are good buys and they don't typically last. And some times they become good buys just based on a serious price reduction. And this time of year these may be difficult to even look at because they are heavily rented or snowed under.
Then the real scrubbing begins. Right now there is a large inventory of the "cookie cutters"––many are units built in the last few years and many bought on speculation. Frequent readers know I'm not enthused about the Village condo hotel units––too much supply, mediocre revenue, high costs, low utility, etc. (but your wife likes it!) And for clarification, I do condone investing near the Village, just not in the Village. (If you haven't figured out why you need to read further into this blog's content.) The Village will go through considerable pain, but it will recover. The sooner the better, but it will take at least 3 years or more, just depending on the level of obstinance. Other inventory in this scrub out includes The Lodges (Snowcreek 6), The Westin, Solstice and a few others.
If the prices come down these might be worth buying, but most were bought at peak pricing. We can pull about 100 +/– listings out of the inventory––like a big blob just sitting there. Some of these may end up in foreclosure, but most will just sit. Like I have reiterated before, when it comes to this class of units there is only a small percentage worth owning––ones with great locations within the project, views, sun, etc. In the condo hotel product the top floor is nice. (I recently noted a sale of a 2 bedroom in the Village, great price, but I sincerely hope the new owners are hard of hearing.)
Then my scrubbing mind goes to the "Why?" part of the inventory. Newbies can sell them but I can't. Second homeownership should have positive connotations––great experiences and memories and anticipation of future ones. While no property is perfect, one of the goals is to minimize the nightmares. Spend some time with a conscious (or self conscious) Realtor and you know that scrubs out another 60 or 70 properties. Why? Poor locations (even though some of these units might be new), funky HOAs, long histories of defects and problems––the things your home inspector won't find, etc. (I'll still take a 40-year old Chateau Blanc unit over a great deal of the inventory.)
And now I get down to scrubbing on good properties that just aren't priced to the market at this point in time. There's nothing wrong with the property. The local agents (myself included) are, in the past couple of months, really beginning to take a stance on pricing. It is just market reality. The agents and owners have been programmed by years of increased pricing and even taking the risk of "leaving money on the table". Those days are over. I see no "magic pill" announcements or legislative stimulus package (just more great skiing). The media and the lending environment (the return to traditional lending standards) have taken their toll. The good news is that there are still buyers interested in Mammoth. And they already have the bulk of the information to make their buying decisions. And they aren't going to pay 2005 pricing for less than spectacular properties.
The problem is the inventory is swollen with properties that simply aren't going to sell, at or near their currently listed price. We have proven that they will sell at something substantially less. The "don't have to sell" owners who have their properties listed are doing the market a great disservice by bloating the inventory. The local agents and these sellers appear to be wising up. On the other hand, there are sellers hoping to sell at their price but can't because their loan amounts exceed the current value. Some agents are marketing these as potential short sales. To make these short sales work in a second home/investment environment, something is going to have to give. Owners are going to have to put money into the transaction or the lenders are going to have change some historical policy. So far, I'm still a short sale skeptic in this market. The agents working these transactions may tire with frustration, especially for a reduced commission. The short sale buyer may conclude they aren't getting a good enough deal.
So at the end of scrubbing the inventory, there remains a small, maybe less than 50, amount of condos to pay attention to. But the scrubbing is an almost constant. Oops, look at that, this new listing is priced to sell. Better go take a look. See ya!
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