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Back to basics - Mexican real estate
By Harriet Cochran Murrray • Cochran Real Estate - September 2010

Our readers are aware of the real estate market conditions in the US which indicate oversupply in many markets, and lower prices than 24 months ago.

Economic conditions in the rest of North America are being addressed by measures such as refinancing of mortgages at lower interest rates to decrease monthly payments. The US is dealing now with job losses which will mean as the economy shrinks, more middle income families will have difficulty keeping their homes. Government programs are offered to try to lessen the problem. Solutions are not easy and the cost will have to come from some source, private or public.

Economic problems occurring in the north at the moment create uncertainty. Uncertainly affects interest in vacation or resort property. For some, this is a time to buy a good property, for others is a time to wait.

In the past few years, many buyers of Mexican properties have borrowed against the equity in their homes in the US or Canada. Good appreciation afforded buyers the ability to borrow enough to buy a second home in Mexico. This method had more appeal, even though mortgages were available from American lenders for Mexican real estate.

Interest rates are higher on second homes and terms are shorter than mortgages on a primary home. Americans have become accustomed to very low interest rates, probably the lowest offered anywhere in the world. They have also become accustomed to low on no-down payment mortgages.

We see much about trends in interest rates, national home price cycles, new housing starts and economic indicators which influence real estate markets. Resort markets have different dynamics. The number of housing starts, for example, in Texas, does not materially affect the demand for real estate in Puerto Vallarta or Punta Mita. The impact on real estate in a resort market is affected by general economic conditions in the US such as stock and investment markets. Lack of discretionary income can affect demand for the resort or second home product.

A bright spot on the horizon is that our resort inventory is high. Traditionally this means prices do not increase, but decrease.

A buyer’s market gives the cash buyer a smorgasbord of properties to select. New construction is available, as well as re-sales in settled, desirable areas.

Human beings are drawn to temperate climate, water and sun. The intrinsic value of our location still exists.

Seller financing will become more of an option than in years past. To be competitive, the seller needs to realize that Americans and Canadians can live with a 20- 30% down payment and terms over 15- 20 years, with the balance due, say in 5 years. This buyer will expect to be able to pay off or refinance the property at a later date when economic conditions improve and mortgages are competitive in the institutional sector. Leverage is important to the buyer.

In some cases in the Bay, prices are back to their 2006-2007 levels. For example, a buyer has an opportunity to obtain owner financing on a new un-occupied 3 bedroom home inside a gated community. The price of this property is at pre-construction prices three years ago. The seller is happy to sell on terms and receive a monthly income instead of all cash. His yield over the course of the mortgage will give him a profit over the original price he paid even though he is selling at the same price he paid originally.

Buyers in this market will be attracted to this type of opportunity. Sellers need to realize that a buyer with 60% to put down doesn’t need or want a seller loan. This buyer will just look for a lesser priced property and pay all cash.

The buyers, who will ¨win¨ in this current buyer’s market, will be those who have desire, cash, and the skill to find a good property which has location, condition and price to match their desire and taste.

It is healthy to have buyers in the market now that can pay all cash as well as obtain seller financing. Buyers take out inventory; they find the best deals usually and force the market to adapt.

To bring equilibrium to supply and demand; we need the ¨bottom feeders¨ to come in and take product out of the inventory.

The reality of the market is that when prices are too high, location too weak, conditions too poor, only the most competitive will be sold. Sellers who are not motivated will most likely have to wait longer to sell. This is a fact. Email to a friend

Harriet C. Murray
E-mail: harriet@casasandvillas.com.

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