Dallas Morning News Article on PV Real Estate

This writer’s columns has been picked up a by a number of US publications, which by and large is good for Vallarta. It was written by Scott Burns and I first picked it up from Paul who wrote in, and found it on the Dallas Morning News.

In fact, new construction goes far beyond the confines of Puerto Vallarta. It is everywhere along this beautiful coast. In the places where it is not yet completed, billboards (in English) announce the imminent arrival of another opportunity to live in unsurpassed luxury and elegance where you can view the world from a plethora of infinity pools. Here, in this part of Mexico, real estate is big business.

Well he’s got that right. Real estate has become really big business in and around Vallarta.

What that means for anyone who has contemplated a second home in Mexico or retirement in Mexico is very simple: A buyer’s market is either here or on its way. The supply of condos and homes for sale exceeds demand.

Well, although that hasn’t been confirmed yet, we seem to be heading in that direction. But we do have a few things going for us that will at least soften this, and Scott brings up a few good points with regards to this.

But let’s put it another way. While the number of millionaire households in the U.S. has shown stunning growth in the past few years, millionaires are in short supply relative to the number of luxury opportunities that have been created. Does this mean a crash is coming to Puerto Vallarta? I wouldn’t bet on it. The market here isn’t likely to suffer the steep declines we’re seeing in places such as San Diego, Las Vegas and Miami. Here’s why:

According to Vallarta Lifestyles, whose current 265-page issue is bursting with real estate ads, the average condo resale price rose 79 percent from $196,000 to $351,000 between 2003 and 2007.

Hey, we’re quoted! He should pick up the most recent issue, its over 300 pages! Its good to hear that he also doesn’t feel that a crash is coming, although compared to those places, that doesn’t say much.

That’s a hefty premium over the 32 percent increase in the OFHEO (Office of Housing Enterprise Oversight) index for the United States during the same period, or even the 50 percent increase for the Pacific states. Sounds ripe for a fall, doesn’t it?

Not so fast.

Keep talking Scott, like what I’m hearing so far…

Another thing to remember is that Mexico isn’t blessed with our creative financing. Most homes are purchased for cash. So if speculators have bought houses and condos in Mexico, they’re probably well-financed speculators compared to the folks who used Liar Loans to borrow their way to bankruptcy in the U.S. Here, property owners are likely to hang tough, waiting for a better market.

But people from the U.S. are the primary buyers in Puerto Vallarta. And the majority of them are from California. I would not be surprised if many of the condos sold in the past few years were purchased with cash from refinancing a house in California.

That’s a very good point. How many people in California, or elsewhere in the USA, refinanced their principal residence in order to buy for cash in Mexico? And how with that play out going forward?

Bottom line? It won’t have the stark drama of places such as Fort Myers, Fla., or Stockton, Calif. But Puerto Vallarta looks like a long-term opportunity for buyers and renters alike.

Its going to be an interesting year…



5 Responses to Dallas Morning News Article on PV Real Estate

  1. With the prices in Puerto Vallarta I do not think it is a buyers market yet. Give it a year or so and take another look

  2. jasonR says:

    In fact, it’s going to be a starker drama than a lot of what we’re seeing the US, though we may not know if for a while as mexican ‘statistics’ are notoriously inflated or deflated, as the case maybe – just look at the current statistics. if prices have really increased in Vallarta by 79%, that’s clearly a bubble! I mean that’s the very definition of a bubble – even more so than in the disaster now unfolding in the US.

    what makes anyone think that the same thing won’t happen in Vallarta as in the US, the UK, Spain, Ireland, Australia, etc? – in fact, perhaps, worse, because these aren’t primary residences in Vallarta people will try to get out of these deals or find themselves unable to pay the expenses, especially if there’s a big drop in tourism, as most of these condos and villas etc are rental properties and not primary residences that are absolutely necessary. And it’s a mistake to think that the problem in the US is now primary or exclusively due to liar loans or lower class foreclosures, not at all.

  3. johnlifestyles says:

    With regards to current prices and a 79% increase over the past five years, its all relative. Were prices a bargain to start with? Many people think they were. Are prices too high now? Well, is $350,000 USD for a condo in Vallarta high? Some will think not. Vallarta moved from being a place with poor infrastructure, poor supply of product, that few people knew about, to a world-class resort destination that now offers first-class product. Demand created this so that people were willing to pay prices somewhat near they are in Hawaii, for a home in Vallarta. And they still seem to want to do so. The 3-hour flight compared to a six-hour flight is attractive. NOT being on an island is attractive. And we are still below their average prices, significantly.

    The 79% appreciation was realized mostly because of the increase in the high-end of the market and also beachfront properties. They appreciated the most and they are the one’s most likely to retain their values. It would be interesting to separate them from the “regular” property sales to see what the appreciation has been. Other properties haven’t appreciated as much, so that 79% is a little distorted; as you mention, its sometimes easy to lie with statistics!

    There is certainly going to be a tightening up of credit in the USA, which is the market that effects us most. But I’ve seen in the past that when the US market has tightened up, it actually helped Mexico or more specifically, Vallarta. When things get tight people don’t travel as far. When the Euro is 50% over the value of the dollar, they don’t go to Europe. When real estate is priced in their currency, Americans like it. We have that going for us. And this goes as well for vacationers; when it gets tight, people stay closer to home. And Vallarta is pretty close to home compared to other places around the world.

    And don’t leave out the strength of the Canadians and the national market. Their economy’s are decently strong and they have buying power. And Vallarta is in a much better position to take advantage of this over Los Cabos, Peñasco or Cancun.

    My concerns going forward are:
    1) What will be the fall-out from the substantial decrease in pricing in Miami, Arizona and California? When the credit crisis is over, will be people be attracted to the low low prices in these areas, where they can pick up foreclosure homes for a lot less than what is was at the peak, over a home in Vallarta?

    2) How will developers, who are now well into development, handle a slow-down? Will they be able to weather this, are they sufficiently financed? How much of the market was speculative-driven? We are seeing with a number of projects that they are now competing with the flippers or speculators who bought from them and are now putting their properties back on the market, and competing with the developer’s inventory. How much of this is is out there?

  4. jasonR says:

    there is no doubt that Vallarta has a lot going for it. let’s leave aside for the moment the actual changing conditions of the city and area which have upset a large number of people who live here and many of the tourists who have seen these changes and don’t like them and so they don’t come back…. let’s leave that factor aside for just the moment. Vallarta has gotten a lot of good press and good word of mouth over the years, and for good reason, and that’s why the whole area has grown. in fact, it’s overgrown. that is without a doubt true. why? because most of the developmental growth has been in the last 3-7 years (and especially since the very corrupt PRI party came into control in city hall 3 years or so ago) , and this is highly correlated to the housing and credit bubbles in the US. cheap money means a lot of gringos have been buying and investing and speculating here. it’s been a boom town a boom area. and frankly that’s coming to an end, you can even see where some of these developments are slowing down in their work schedule or falling behind or cancelling or not getting their permits or being involved in huge lawsuits (like La Roca, Amapas II, Grand Venetian etc etc) though there are also a number of mitigating factors….

    my problem with knowing what’s actually going on in Vallarta, and i’ve lived here a long time is that while i ocassionally read both the english and mexican press, i am highly suspicious/skeptical of any statistics that are published. that goes without saying in this country and i don’t think i really need to explain why. suffice it to say that a lot of what we know in town on this issue is anecdotal in nature. recent anecdotes tell me that both the rental and sales ends of things have slowed down this past year in Vallarta, perhaps beause it’s overbuilt and in part because tourism in general is contracting and going down. A good source in a major real estate agency told a good friend (here we are yes at second hand but that’s the way it goes) that some agents here are saying that their sales/business are down up to 70%. not all but some. (and also that no one now is actually paying the listed prices for condos/houses) now, no one in town is going to print that kind of figure because 80% of real estate is positivistic promotion.

    And people in the US just have to pay higher gas and food and airline prices and many millions are overextended on their credit and housing payments……

    A tightening in credit in the US negatively affects tourism and pricing here. People are just not going to have the kind of cheap easy money from now on that they’ve splurged on the last 7-10 years.

    Your number #2 question has occurred to me and I’m not sure if these developments are well insured or have enough cash on hand to cover buildling and maintenance fees for a few years if things slow down. frankly, i’ve been worried that parts of Vallarta and the Bay will soon by like something out of las Vegas, FL or the valley in CA where there are large tracts of houses/condos that are empty prices are coming down and no one is buying or occupying. I read at one time that some 25% or more of all the real estate transactions were speculative in the US and I suspect it’s quite a bit higher here. I know that the year round gringo population here has increased but hundreds of these new condos in Amapas, Olas altas and Alta Vista and the Marina etc aren’t residences per se, they’re rentals. Seems to me that the real estate mags in town are just bulging with condos and villas/houses for sale.

    god only knows who’s going to buy all the new stuff out in Bucerias and La Cruz and Nuevo that are being advertised on those god awful visually polluting billboards that have sprung up like poisoned mushrooms around town. Does anyone in power in this town and area here have any visual or city planning aesthetics?? Avalon and Molino are just ugly as sin (not to mention the monstrous Peninsula and Venetian) and totally out of whack with both the Natural surroundings and the small town feel of so much that’s good in Vallarta…..it’s disheartening.

  5. John says:

    Sorry for the delay on replying, on a sailboat and Internet access is intermittent.

    Markets go up, and market go down. The down helps correct the market, and that’s what we are/will be going through. But its normal and healthy. Question is, how long will the downturn be? There are serious credit problems that need to be addressed in the USA in order to get that country and hence our market back in line. The sooner they stop denying it and get on with fixing it, the better.

    PV is a different market than it was 10, 20, 30 years ago. I’m currently onboard with a guy who moved to PV 50 years ago. Sold his business 30 years ago. He doesn’t like the way PV is now, but then its a lot different today than from what it was 50 years ago! And from seeing the places he likes to stop as we sail, he prefers the small, quaint places.

    But people coming to PV fresh do not know what it was like in earlier years. They take it for what it is and make buying decisions accordingly. I think that for the most part, people like what they see. And if they don’t want the city, there are other options available. When you take a look at what is available elsewhere, whether in Mexico or other places, we have a lot going for a destination. Sometimes we get a little tied up looking inward rather than stepping outside and looking at the whole picture. Something I’m getting the opportunity to do right now.

    We have no where near the amount of inventory that Las Vegas, or Miami, or even San Diego loaded onto their local markets. And much of our current inventory is still in the development stage, which means it can be scaled back. There are not a lot of empty condos at this time, which is certainly the case in the places just mentioned. Our wave is in its early stages. Perhaps the correction will be over by the time they are ready!

    Thanks for your participation Jason, very perceptive and very much welcomed!


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