Recently there was a question in a local Vallarta paper asking David Schwendeman and Terence Reilly was the mortgage meltdown in the US affecting the mortgage market in Mexico?
There answer included the reasons why the mortgage market looks good for the foreseeable future.
They wrote about Supply and Demand, two of my favorite barometers for markets. According to their status, 90% or more of properties in the US and Canada have mortgages attached. The availability of mortgages for residential financing has created in large part The American Dream of everyman owning his own home.
90% of more of property in Mexico does not have a mortgage attached. We all realize that there are a number of new developments coming on stream, and many of them are being sold in pre-construction. There may not be enough cash buyers for this inventory, but the availability of conventional residential mortgages can allow for a much broader buyer pool and stability and growth in the market here.
Also, there are mortgages now which can be put on existing properties if the owner wants to finance and get a lot of cash back out. Buyers can also now cross collateralize property in the states and get cash out that way. Or, mortgages are still available now on the Mexican properties.
The biggest contributor to the mortgage crisis in the US was the practice of irresponsible, sub-prime lending. Too many people took too much risk borrowing too much money, which collectively couldn’t be paid back responsibly. In truth, a 20-30% down payment fosters a higher commitment level to the purchase. A higher commitment level means less chance of default and less risk for the bank. This means more responsible lending.
Cross border loans are a little more difficult to qualify for than mortgages which caused the problems in the US. These mortgages on Mexican property, even by US lenders, require a higher level of commitment from the borrowers, which minimizes the chances that we will have the experience here in that the US is going through. There are no sub-prime mortgages available in Mexico.
The Mexican Economy is tied to the US economy. All three countries, USA, Canada and Mexico are North America. Tourism is essential to Mexico’s economy. The west coast of Mexico has depended on US and Canadian tourism, to a large extent.
We have continued to see increases in arrivals to Puerto Vallarta at the international airport. The increase is attributed to the success of new low-cost airlines as well as the greater number of routes and flights operated from Los Angeles, Denver, Atlanta, and Calgary as well other North American cities.
However, European investment is on the west coast of Mexico, now and Euros are looking for a place to invest for value. Mexico can be favored at this time over section of the US because of the lower cost of living, i.e. labor, expenses to maintain, and the favorable climate. The protection we have in the Bay against hurricanes is also a large reason for some buyers and investors favoring us over Florida and parts of the Gulf Coast of the US.
We have not seen a decrease in buyers looking for properties to buy. In fact, the Canadian dollar being strong has brought renewed interest of Canadians to shop for sunny properties in the Bay to ward of their cold climate. Our market here charges in US dollars for the real estate, and Canadian money now is equal to or higher.
Harriet Cochran Murray
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 conduct his own due diligence and review.