April 2013 ● Mexican Financial Growth and the US Housing Economy

By Harriet Murray ● Cochran Real Estate ● April 2013

Some writers in Mexico have recently stated that the Mexican real estate market will recover as the US housing market rebounds. Is this True?

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Puerto Vallarta Real Estate

Mexico is growing its economy and trading heavily with the United States, according to Mario Laborín Gómez, chairman and CEO of ABC Capital. Laborín was recently the keynote speaker at a panel discussion on the Mexican economy and trade with the US at the University of Texas.

The three nations’ economies became closely entwined in 1994 when the North American Free Trade Agreement was signed between the U.S., Canada and Mexico.

Eighty percent of trade for Mexico is tied with the United States. The Mexican economy is not only good, it’s growing.

In 2010, Mexico purchased $163.3 billion in U.S. exports and exported $229.7 billion in goods to the U.S. Canada exported $275.6 billion in goods to the U.S. that same year.

So Mexico is doing well financially. What about the housing market in the US for 2013?

Forbes comments from Bill Conerly: The housing market will improve moderately in 2013, but nobody will mistake this for a boom. The gains in activity and prices will be a welcome relief, but many homeowners will still be underwater.

The usual way of discussing housing problems is misleading. Foreclosures, short sales, shadow inventory, upside-down mortgages are all symptoms. The fundamental problem the US has an excess supply of housing units.

Recent underbuilding has been the greatest aid to housing recovery. It did not act as fast as we might have expected, because the recession slowed population growth, from both a smaller birth rate as well as less net migration from abroad.

In addition, adult children moved back in with their parents. Slow improvement in the job market means slow movement of kids away from their family homes.

It’s too early for housing starts to get back to normal—and the US will not see above-normal construction anytime soon. 2013 will probably see over one million total housing starts. This will be a substantial percentage gain over 2012, but a 30 percent gain from a very low number, is still a low number.

Home prices will rise in 2013, but only modestly. The most recent data suggests that national average housing prices are rising by roughly five percent annual rate. This is too optimistic a projection for the next few years. There are many owners of multiple underwater properties who will sell as soon as they don’t have to lay out cash. That increased number of houses on the market will limit price hikes.

There is not much reason for housing prices to appreciate by more than three percent plus inflation, or about five percent in this current environment. Periodic booms and busts will push price gains above or below trends. A change in tax laws which favors or disfavors real estate will cause one-time price changes. Ten-percent appreciation expectations are not realistic on a long-run basis.

Apartment investors (and landlords of single family homes and condos) will find that their little boom does not strengthen much further. Rents have risen so much that owning is becoming cheaper than renting in many cities. With an expectation of price appreciation, we’ll soon see renters anxious to buy their own homes. Times will not be hard for landlords, but they should not project further gains beyond what they secured in 2012.

Harriet Murray
E-mail: harriet@casasandvillas.com
Website: http://www.casasandvillas.com

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review.

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