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Q: Okay Paul, I've read your stuff over the years but even you have to admit that Mammoth real estate prices have gone out of control. They just keep going up and up. Lots of people around town say its all going to crash pretty soon, but I think they're just jealous because they don't own any property here. But it does seem logical based on the history of Mammoth and real estate. How far can this go?
A:This is the 64 million dollar question in Mammoth and nobody really knows for sure. I've reviewed the supply and demand factors contributing to all of this appreciation many times over the years. Those who believed years ago have been richly rewarded. On the other hand, some still don't get it.
The speculative causes for a potential crash run from possible natural disasters to higher interest rates to the impact of the presidential election. It has spurned a whole new field of economics called bubblenomics. We know "bubbles" are valid in the economic and historical cycle. It has to happen. The Wall St. crowd has been predicting a real estate bubble and/or crash for the past couple of years. But will it happen here, and when, and to what extent?
There are many things people forget which contributed to this massive increase in values here in Mammoth Lakes. To start, during the heyday era of Mammoth in the late 70's and '80/'81, real estate values rivaled any of the mountain resort communities in the country. Mammoth was also the most visited ski resort in the country. Then a long series of events drove values into the severe depths. Earthquake and volcano scares, high interest rates, the tax code changes of 1986, relative drought years from '87 to '92 with no real snowmaking on the ski slopes, the recession of the early '90s, the Mountain's admitted lack of a "resort" business plan, heavy resort competition from the outside, hantavirus, our own "Mammoth inbreeding" mentality, and a host of other things. Those of us who lived through it all have tried to block most of it from our memory.
By 1997 (and that was only seven years ago), real estate values were so low that potential buyers thought we had the plague. Most affluent buyers wouldn't come near us. But those of us who really believed in Mammoth, or were dumb enough or lucky enough to buy property back then, have some major equity in properties today. We all kick ourselves for not buying more, but it's tough to buy and make payments with a smile.
After 1997 the Mammoth Renaissance began, spurred by a much better economy, baby boomers coming of age, Intrawest's development push and painting of the "vision", and simply the destiny of an awesome mountain resort town that had sat stagnant for many years.
Now compare our values today to other destination mountain resort communities across the country. I hate comparisons to towns like Vail, Sun Valley, Whistler or Telluride, but the truth is Mammoth is heading in that direction of popularity and prominence. Our values are catching up, but are still behind, in some cases far behind. If you follow all of this reasoning, Mammoth has come a long way, but still has more to go, maybe a lot more.
Other factors support the argument for continued appreciation. The demographics of Southern California and Nevada, our primary market and owner pool, are changing. No longer do people seek refuge in Mammoth only to ski and hike. They want to escape! And while the coastal neighborhoods from San Luis Obispo to the Mexican border are rapidly becoming one of the most affluent areas in the world, life is becoming congested and threatening. These people are more concerned about urban threats than natural disasters. And Mammoth is a healthy place to truly re-create. And further, these people can afford to stay for extended periods.
Something else we locals don't see is that it has once again become fashionable and chic to own a place in Mammoth. To own a place at Eagle Run is a worthy cocktail party bragging right.
Many economists who study markets like resort homes, yachts, motor homes and the like, believe the consumers and owners of these amenities are far more insulated from the vagaries of elections, recessions and interest rate hikes. In Mammoth, many properties have been purchased with cash or substantial down payments, with proceeds from tax-deferred exchanges, or with loans at very low interest rates. But ultimately, escaping to the mountains has become a high priority for these owners. Just the thought of being able to escape has great value. And many of these properties are seen by their owners as "legacy" properties—properties likely held in family trusts destined to be passed on to the future generations of the family for decades of enjoyment.
So the question of "how far can this go?" might be better asked as "how long will this go on for?" But for me, the most important market condition is not the general trend of the market (or if it has the potential to crash), but to recognize how the market is beginning to fragment into segments. Not all Mammoth properties are equal at this point of the game. Supply and demand within the different segments is changing dramatically. Some segments should continue to flourish, while others are destined to fall short of expectations. Knowing those dynamics is critical for buyers looking to make sound investments here in the Eastern Sierra rather than marginal emotional purchases. For further detail and discussion about those critical issues, consult your favorite local Realtor®
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