Mexico’s housing market remains healthy, despite ailing economy

Written by LALAINE C. DELMENDO for Global  Property Guide

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Mexico’s housing market remains robust, with the nationwide house price index rising by 5.8% during the year to Q2 2020, according to the Sociedad Hipotecaria Federal (SHF). When adjusted for inflation, house prices increased 2.9% y-o-y in Q2 2020.

By metropolitan area, Tijuana recorded the biggest y-o-y house price growth of 8.1% (5.2% inflation-adjusted) during the year to Q2 2020, followed by Guadalajara (8%), Puebla-Tlaxcala (7.1%), León (7%), Monterrey (6.8%), Querétaro (6.2%) and Toluca (5.8%). In Valle de México, house prices increased modestly by 2.9% (0.14% inflation-adjusted).

What’s even stranger is that this sudden takeoff of the housing market comes after Mexico’s housing market has suffered prosaic growth for a decade, in real (inflation-adjusted) terms, despite strong nominal growth.

 

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The secret is Mexico’s enormously strong domestic market, particularly the rising middle class. In 2019, the country’s middle class was estimated to account for almost half of the total households, at about 16 million. They are expected to continue growing, with about 3.8 million more households projected to move into the middle class by 2030. Moreover, most Mexicans who move generally prefer to buy rather than to rent. Around 82% of Mexicans want to buy a property, as opposed to 18% that prefer to rent, according to Lamudi.

Foreign demand is also robust. In recent years, American and Canadian buyers have been returning to Mexico, after a several-year slump, thanks to low oil prices and the strong US dollar, pushing home values up. More than 1 million Americans live in Mexico, and more than 500,000 own homes in the country, according to a 2019 Forbes article.

In the past year, the value of the Mexican peso (MXN) depreciated by 9.7% against the US dollar, to reach an average exchange rate of USD 1 = MXN 21.654 in September 2020.

 

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Since the Mexican housing market is not driven by speculators, it has been resilient despite the pandemic. In fact, house prices are expected to continue rising during the remainder of the year, according to local real estate experts.

But economy wide, the story is different. The Mexican economy shrank by 0.3% in 2019, the weakest performance in a decade, due to the uncertainties related to the renegotiation of the North American Free Trade Agreement (NAFTA) (now rebranded as the United States-Mexico-Canada Agreement or USMCA), the policies of President-elect López Obrador’s administration, as well as the US-China trade war. 

Now, the coronavirus pandemic is making things much worse. In Q2 2020, the economy shrank by 18.7% from a year earlier, following a downwardly revised 1.4% fall in Q1. It was the biggest y-o-y contraction on record. Recently, the IMF revised its 2020 economic forecast for Mexico to a whopping 10.5% contraction, worse than its earlier estimate of a 6.6% decline.

 

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Strong demand from foreign buyers

In recent years, American and Canadian buyers have been returning to Mexico, after a several-year slump, thanks to low oil prices and the strong US dollar, pushing home values up.

American buyers are very important as owners of beachfront properties. More than 1 million Americans live in Mexico, and more than 500,000 own homes in the country, according to a 2019 Forbes article. In fact an earlier article published by Point2 Homes ranked Mexico first among 30 favourite US and Canadian destinations for second home searches. Some of the most sought after Mexican destinations on Google include Puerto Vallarta, Cancun, Playa del Carmen, Cabo San Lucas, and San Miguel de Allende.

Source: Global Property Guide

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