|
Q: The doomsayers (trolls?) on your blog are always referring to the crash in values in the 90's, but as I recall the real devaluation of properties in Mammoth occurred in the 1981 to 1987 timeframe. Please draw the key differences and similarities between the 80's to now.
A: You are correct that the early and mid 90's was not a substantial crash here in Mammoth. Values rose slightly in the late 80's but were still quite hungover from the disaster of the early and mid 80's. Values in Mammoth really languished for well over a decade. It wasn't until the Intrawest hype machine, and the better economics, of the late 90's arrived to shake us out of the stupor. (Some argue that that long period of suppressed values––while other quality mountain resort communities inflated––is why Mammoth won't fall as far as many other markets.) The economic conditions we experienced in Mammoth in the 90's is why so many of us that remained (literally) in this community worked so hard to plan for a successful economic future. I have a feeling we'll be revisiting some of those plans and failures in the next few years.
But the 80's were a doozy for a multitude of reasons. I remember it as an era of everybody having at least four or five jobs to survive. I also remember it as a time of great skiing and lots of fun (but of course I was a lot younger.) The big wild card, and perhaps the greatest influence on real estate values, came right out of ground. The ground shook (hard) in Mammoth and Mt. St. Helens put everyone on notice of the dangers of living near magnificent geology. The USGS, like many boomers today, decided Mammoth was a perfect place to spend lots of quality time. They became known as the U.S. Guessing Society. And the press gave everyone the impression Mammoth was about to blow.
Today, the earth around us has settled down and buyers of real estate in Mammoth have witnessed natural disasters everywhere in the world (and even in their own backyard.) And they seem more concerned about escaping "city" problems––traffic, crime, etc., than they are the potential natural disasters in Mammoth. But years of USGS presence, ongoing earthquake activity, and plenty of negative media coverage, did nothing good for real estate values. It kept Mammoth at the bargain-basement values well into the late 90's and even beyond.
Another major contributing factor was interest rates. I hear folks whine about "high" interest rates today. Anyone with a perspective will laugh. Mortgage rates in the heyday of Mammoth real estate (late 70's/1980) were in the 14% to 16% fixed range. And real estate values in Mammoth were comparable to places like Aspen and Sun Valley. (Again, some argue that Mammoth values only "rebounded" during the goldilocks period.) Today's interest rates are downright cheap. But those high interest rates ultimately resulted in massive foreclosure rates––foreclosure volume that dramatically affected downward market values. I remember some condo projects with a vast number of bank owned units. I don't see that happening this time around. But…
Tax laws have always impacted real estate values in Mammoth. The tax-deferred exchange (IRS Sec. 1031) laws helped drive the market in the past 10 years. Many buyers were "exchanging" into Mammoth second homes. The tax-free sales opportunity for primary residences (Sec. 121) also drove a certain amount of volume. (Thank you, Congress and IRS.) But the tax law changes in 1986 destroyed existing and very, very attractive tax benefits to second homes owned by professionals like doctors and lawyers. Those changes alone would have affected market values, but on top of everything else it was just like finding ice on the run you enjoyed so much the day before.
And of course there was a notorious recession in the early 80's, and some inflation too. (Will there ever NOT be inflation? Anyone want to chime in?) I'm not smart enough to know where our present day economy is going but I'm seeing a recession on Main St. But that's bound to happen after a really good party. One other thing, timeshare was tried in the pre-80's heyday and it failed too. This time around it was dubbed "club". It will be fascinating to see how all that works out. Is there enough "smart" or "dumb" money to come and bail all of this out?
There are some real differences this time around. Demographics is the well beaten horse but there is no denying it is real. It seems like everyday I hear "I just turned 60 and …". The eight-lane population highway of boomers that now want to purchase their escape-and-recreation/semi-retirement home in Mammoth were also a big part of the 80's. They lustfully came to Mammoth to ski, buy rounds of drinks at Rafters, and seemed oblivious to earthquakes, interest rates and recession. No wonder the bar business was so good back then. Now their kids are out of college and 60 is the new 40. Make reservations and summon the sommelier.
Visitors and second homeowners have also come to appreciate summer. In the 80's it was the big secret. The locals had it all to their poor selves. There was nobody in the backcountry. European tourists didn't know how to tip (and there was no Euro, which today would be a welcome tip.) And trout tacos weren't that bad, even if you had to resort to stockers caught right out of Mammoth Creek. But Town marketing efforts, mountain biking and golf have helped the crowds know how nice it is here in the summer. And that is not likely to change. In some recent years the best financial quarter for local businesses was the third quarter (July, August, Sept.)
And for true real estate watchers, one giant change from the 80's is the transparency of information. Listings of homes and condos for sale and other real estate related data was exclusive and proprietary to the industry players. Looking back it is almost comical how the brokers controlled the information. Today it is all out in the open. Peruse all the various websites of the Mammoth brokerages and agents and a truly analytical consumer can be more knowledgeable than most of the active agents. And trust me there are plenty of Mammoth wannabe owners who are watching intently. The challenge for the modern agent is to bring added value to the process––more then just regurgitating the information they see on the computer screen. (Where the hell is Mala Ulice Street?)
In the end, the immediate drop in Mammoth real estate values should resemble the 90's more than the 80's. If we can just get past the hysteria and mindset of the inflated asking prices following the Starwood acquisition of MMSA and the era of toxic loans. Of course, you can always drop down a big deposit on a unit at the Ritz. Or you can go to Vegas.
|
