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When is this Real Estate bubble going to burst? Should I wait?
One of the most common questions I get as a real estate agent in Puerto Vallarta is “Should I wait to purchase my Puerto Vallarta home until after this real estate bubble bursts?” The first thing we need to evaluate is if indeed there is a bubble. It’s easy, and human nature, to remember the bubble bursting in 2008 and imagine that we may be in a similar situation now. Let’s first look at what economists define as a bubble:
“When there is an increase in speculation, when people are buying based on expectation of appreciation as opposed to a need for housing, that’s when you could be in a bubble.”
It’s also vital to remember that the market here in Puerto Vallarta, while tied to the economies of Canada and the USA, does operate differently. The lack of mortgages and the fact that many homes are second or vacation homes changes the dynamics of the marketplace relative to the USA or Canada. As an example, days on market is much longer here since sellers do not have to worry about high carrying costs due to a mortgage.
Today's rising home prices and a persistent seller’s market differ from the 2007 housing bubble in a few significant ways, In 2006 to 2008, really what drove price appreciation being so high and home evaluation being so inflated was the idea of excess. People were given a lot more credit than they should have been and there were a lot of risky loan types out there.
Today’s market boils down to the simple economic principles of supply and demand, a very different scenario than 2008. Stronger buyers, safer loans and we see the results of that; foreclosures in 2021 dropped to the lowest rate since tracking began in 2005.
So how do these factors impact the real estate market here in Puerto Vallarta, and in Mexico’s expat areas? To answer that we need to look at some other factors including the pandemic. The pandemic shifted people all over the country and even out of the country, leading to demographic changes at warp speed. In a recent CBS 60 Min report called “The Big Quit” (Click here to watch) Karen Kimbro PhD, LinkedIn’s chief economist stated:
“People have been ´living to work´ for a long time, the pandemic brought that moment of reflection to everyone. What do I want to do? What makes my heart sing? and If not now, then when?”
As a result, people have been quitting in record numbers. 20 million people quit their jobs in the second half of 2021. The highest number in history. The quitting spans all generations from Baby Boomers who are deciding to retire early to Gen Z (teens and 20-somethings). Kimbro goes on to say: “People are choosing more affordable places because of housing costs; people are willing to try something new.” Other LinkedIn data shows that even after the economic stimulus payments ended, people did not rush back to work. They found other careers and opportunities that fit their lifestyle. Kimbro states that:
“People are 2.5 times more likely to apply for a remote job and pre-covid 1/67 jobs was remote whereas now it is 1/7”
In the February issue of Mexico News Daily you will find an article titled “Who is moving to Mexico from the US? The answer might surprise you!” It goes on to state: “The truth is that most U.S. citizens moving to and living in Mexico today are younger people.” You can read the whole article here. Katie O’Grady, a US expat who runs a relocation consulting business states: “The pandemic has been a huge impetus behind the current uptick in requests for my services. Every day there are more people,” O’Grady said.
“The biggest difference I see now is inquiries are coming not just from the U.S. but also from Canada, Australia and Ireland. Before, 90% of my inquiries were from the U.S. Then, it was about political discomfort. Now, interest is a direct result of the pandemic.”
In a way, the pandemic may have led buyers who ordinarily might have purchased a first or second home in a few years to do so much sooner. Puerto Vallarta and the Cabo areas experienced their biggest year in history when it comes to real estate in all the key metrics, existing homes, new construction and land.
“Everybody is going to have their own mindset and excuses to buy or not to buy”, states Brock Squire, the broker/owner of Coldwell Banker La Costa in Puerto Vallarta. “I just explain that buying now versus holding off and waiting for an unknown bubble to burst is likely going to put you in a place where you’re paying more with fewer choices.” Squire goes on to say, “My agents are seeing a definite shift in the demographic and while we still see plenty of retirees, our clients now include a growing number of young families, entrepreneurs, and remote work individuals”
Circling back to the notion of this being a bubble, I think not. The lead-up to the 2007 housing collapse saw speculation, over-extended credit and other factors that artificially inflated prices. Nicole Bachaud, Zillow economist states “What we’re having now is the complete opposite. We have a market that’s run on scarcity,” Bachaud said. “That’s an organic and sustainable thing that’s happening. In that sense these are completely different markets.”
It bears reiterating that the Mexico expat real estate market is certainly different from the US/Canada market, and yet they are tied together. Continued demand for housing will happen with millennials taking over as the country’s largest group of homebuyers. Doug Duncan, chief economist at Fannie Mae states: "We’re still three to four years away from the peak first-time homebuyer age in the millennial generation, and we see no indication that it will slow soon."
In summary, don’t expect alleged bubbles to be bursting either in Canada the US or in Mexico any time soon. Nik_valcic@coldwellbanker.com.mx WhatsApp 52-322-274-7775
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