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Mexico real estate and the recession

J. Brad Grieve

Colorful homes in Las Animas, an attractive residential area in the southeast area of Xalapa.
© Donald J. MacKay, 2009
Las Animas in Xalapa, Veracruz
© Donald J. MacKay, 2009

As a consultant, I have heard many repeated questions and feel it is time to put my opinion onto paper about what is happening in the real estate market here at Lake Chapala.

Inventories of residential properties available on the local multiple listing service seem to be relatively stable over the last ten years in absolute totals. However the number of sales has steadily declined from the highest volumes reported in 2006 of approximately 30 houses per month to below 20 houses per month in the last quarter of 2008.

These are levels not seen since the last North American economic and political crisis after the terrorist attacks of 9/11, which was also when the water levels of Lake Chapala were near historically low levels.

Of course, this leads into the most common question of "How much have the prices dropped?" Not much at all. Unlike the rest of North America, the prices have not shown decreases, which on the surface appears to be counter intuitive.

North of the border, the real estate market has been influenced by the limited amount of credit available, causing banks to defer or decline applications for credit. This is the consequence of numerous defaulted mortgages; these have caused some loss of confidence in the overall market. This, in turn, has resulted in a large sell-off and hence a demand for liquidity and cash. The real estate market in general has high inventories due to inexpensive credit and now, to a lack of buyers because of the credit crunch.

Lake Chapala real estate

What makes the market different here at Lake Chapala? The profile of the majority of the buyers coming into this area. Most are foreigners, retired, at the end of their income-generating years who come into the local area with cash in hand. They are ready to purchase a home and are not dependent on the availability of credit.

Village street on Mexico's Chapala Lakeshore
Village street on Mexico's Chapala Lakeshore

On the other side of the equation, most homes in the area do not have mortgages, and the seller owns the home free and clear. The seller's motivation to sell is usually a family, health or home size issue (i.e. wanting a larger or smaller home in the local area). Hence the seller is not motivated to sell quickly due to inability to make their next mortgage payment or other dire financial difficulty.

The typical problem in real estate transactions I have seen over the last year is due to buyers who are unable to sell their property north of the border, which affects their ability to comfortably purchase property here at Lake Chapala. Therefore their initial purchase goals may be deferred, scaled down slightly or they become very selective in their purchase, since they are not competing with the onslaught of buyers we have seen over the last few years. As a result, sellers need to listen more closely to the offers presented, reconsider their pricing to be competitive or take their property off the market to reassess the timing of their sale. Heck, it is inexpensive to wait and maintain the property. And why not enjoy our beautiful climate while passing the time?

The last year has shown only a very slight decline in the average purchase price, which is more an indication of the scale of homes that are being purchased rather than a decline in prices. The prices of the houses sold have not lowered. However, some sellers have reduced their overpriced listing price to place the property in a reasonable or competitive price range.

In conclusion, yes, there will be a slight reduction in the number of buyers due to economic conditions north of the border. But property values will not decline at the rates that have been seen north of the border. And besides that, with Lake Chapala now at higher water levels, with tourism increasing, and new facilities and services in the area, the local market has some very positive features that will continue to attract buyers to help sustain and grow the local real estate market.

Where else on this planet can you purchase a piece of real estate in one of the world's best climates?

Published or Updated on: December 26, 2009 by J. Brad Grieve © 2009
Contact J. Brad Grieve

J. Brad Grieve is a professional civil engineer who has lived and worked in the Lake Chapala area since 1994. He is the owner of Ajijic Home Inspections and you can be reach him by phone: (376) 766-2836 or e-mail.

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