“Recession” and other forms of Fatigue

May 27, 2011

Catherine Martin has a post on her blog that talks about “recession fatigue”.

 A client called me yesterday planning his trip down here to buy a property. He has been looking for three years, since the start of the ecomonic downturn. Now, due to the fact that his investment properties in the US are finally selling, combined with the fact that he thinks that property prices here are as close to the bottom as they will get,  are making him bring forward his trip down to Vallarta and buy.
He  told me  that recently in his circle there has been a lot of talk about recession fatigue and a general feeling that people have really had enough of the past few years and the austerity and the bad news, and perhaps now  just want to start enjoying themselves, travelling with family and friends, and yes, maybe think about buying something they can enjoy.

This isn’t the first time I’ve heard this. One guy recently told me, “Hey, this is what I do, I buy things!  I’m tired of waiting to buy something down here, waiting for circumstances to be just right. I realize now that in this world, in today’s environment, with all that is going on, that just isn’t going to happen. Its crazy out there and it doesn’t seem like its going to change much in the near future. So rather than waiting for things to get better, cause how may that be? I’m going make a move now.”

I think this leads to another “fatigue” I wrote about recently being “Mainstream Media Sensationalism” Fatigue, or MSF. People are getting tired of listening to how drug violence in Mexico is portrayed in the American News. Yes, this issue is serious, but it needs to be properly taken in context of where its happening and who it is happening to.

And another form of fatigue is waiting around for the supposed right time to make a move to buy a place in Vallarta. The economic crises and the drug war have held some people back from making a move. Catherine’s “Recession” fatigue is similar to this “Tired of Waiting” fatigue. The economy has improved (for some) and their view of the drug war is more realistic. So what they are doing is investing in purchasing a home or condo an amount which the feel comfortable with, weighing in the risk factor.

But isn’t this something we should do with any investment? If we can’t afford to lose, should we get involved? It all depends on the amount invested and the amount of risk.

Tied in with MSF, people are realizing that the security issue has more to do with their investment than with their own personal safety, as the violence has been overwhelmingly limited to the drug gangs themselves (fighting amongst themselves) police and the army. For the most part, especially here in Vallarta and Nayarit, it has not affected second home owners in the slightest.

What I’ve heard from some realtors lately is that people have made the decision to buy, investing what they feel comfortable with. An amount that if the situation did get worse, they could handle it. And if it gets better (which in my opinion it will), and the risk factor diminishes, they can always move up. But at least they get to enjoy the quality of life they have been looking for in some place like Vallarta. The Boomers aren’t getting any younger!

Vallarta Developer Real Estate Inventory

May 19, 2011

We recently surveyed many of the real estate developments around the bay to ascertain what inventory they currently have on the market and how it compares to year’s past. The graph below shows inventory levels since 2007. In 2007 it was substantially above the other months as a number of projects came online (more than 50). Also at this time, units were selling so quickly that we included total inventory for the developments and didn’t take into consideration if they were releasing in phases or not. In 2008 we did take this into consideration, which brought the number down to just over 4,000 units. It dropped further in 2009 and 2010, from sales (although not a lot), projects canceling or being put on hold.

Although developers now have less inventory on the market, they do plan to release these future phases when the market demands it. When we add up how much there is of this “shadow” inventory on the sidelines, it totals 2,500 units, nearly equal to the inventory that is currently on the market, or doubling it. Fortunately, since its on the sidelines it doesn’t effect the market at this time, but it sure should make developers who may be thinking of developing something at this time, to think twice, or at least   take at look at what this shadow inventory consists of, so they are not building something that some other developer already has future plans for.

Media Sensationalism Fatigue

May 13, 2011

Its in May of each year that I get out and visit with a number of the real estate agents to gather information on what trends are gravitating towards for the year. And this year there’s been one trend that has come up over and over again, and its music to my ears. People are getting tired of listening to mainstream media’s relentless sensationalist attacks against Mexico regarding drug-related violence. They’ve got Mainstream Media Sensationalism Fatigue (MSF).

The feedback I’m getting from agents is they are seeing a substantial increase in activity in the first part of this year. People are out looking at real estate, and not just looking but making offers. Some of these offers are coming in low, but at least they are making a move. At the same time sellers are being more realistic with their pricing, realizing that prices are not going to be going up again anytime too soon, and if they want to sell, be competitive with other homes on the market, they need to list their home competitively.

And then there’s a substantial number of prospects who are looking to purchase land to build a home. Now there’s a positive sign. Who is going to buy land with a commitment to build over at least a year if they are buying into what CNN and others are preaching?

In March and April the MLS saw sales activity double over last year. Once again, and this is something I haven’t experience in a couple of years, its difficult to get appointments to talk with agents as they are busy showing properties or attending closings.

Part of this may be because of the distraction to do Osama Bin Laden.

Perhaps America and its leaders are looking at what they thought was a “friendly state” (Pakistan) and realizing that things are really not so bad with their real friends south of the border. Perhaps it may also mean paying more attention and getting a little more involved with tackling the drug trafficking situation, since the problems both countries face have to do with American insatiable desire for drugs and its loose laws regarding gun sales and their circulation.

Let’s be honest with one another here. If the US is willing to spend $10 billion a month in Afghanistan, and payments to Pakistan somewhere around a billion a year (a country who it seems has been harboring their #1 most wanted criminal for the past six years), two countries on the other side of the world, what should they be willing to spend to assist a country they share a  two thousand mile border with?

If Pakistan is a “friend”, what type of measuring parameters are we using here? Perhaps its time for American to re-group, get out of a few of these “…stan” (Afghanistan and Pakistan) countries and pay a little more attention to their borders, their real neighbors, who they share a very strong cultural relationship with – as more than 15% of America is of Hispanic background.

But I digress…

There has been a distinct change in the mindset of Americans interested in a second home in Mexico. It seems they are finally seeing through the veil of illusion that the media has been postulating. They are catching on that after all these months, (years), that there really has been very few incidents of Americans suffering from violence in Mexico. Heck, in some cases its more dangerous visiting the other side of their hometowns than it is in places like Puerto Vallarta.

Will this get set back once the Bin Laden story has died down? Will it flare back up again when another jet-ski operator finds himself some place he really shouldn’t be and the outcome is not so good? We don’t really know.

But that takes us back to the question posted earlier: “If the US is willing to spend $10 billion a month in Afghanistan, and provide payments to Pakistan  of somewhere around a billion a year, what should they be willing to spend to assist a country they share a two thousand mile border and common problems with?”

There’s two trends here, one more obvious than the other. First, Americans aren’t buying into MSM banter on Mexico like they once were. This is backed up also by investor activity – private investment in tourism projects rose 127% to $903 million in the first three months of the year versus the same period in 2010, Mexico’s Tourism Ministry recently said, perhaps signaling that investors as well are suffering from MSF and are ready to invest further in Mexico. Mexico City was the top destination for tourism-related funds, receiving $196 million, followed by Nayarit, with $164 million. Investors told the ministry that they recover their investments quickly in Mexico, and that the country’s macroeconomic conditions and skilled workforce make it an attractive place to do business.

Secondly, but not so obvious or clear at this time (but I’m making a prediction here), is that American will reduce its commitment to the Middle East and start paying more attention to the Homeland and its borders. And do a better job of recognizing who its friends are.

America just got the shot in the arm it needed. For too long its had to deal with a number of international stumbles created by bungled or drawn-out military affairs. Internationally they lost their “Ramboness”. But what they accomplished in getting Bin Laden, how it was flawlessly executed, has shown the world that American knows what its doing, can perform, in a way that cannot be matched by any other country. They’ve got their mo-jo back. Now its time to focus on what’s most important, and that’s identifying who its real friends are and what borders are most important.

There are more trends that have come out of these conversations, but you’ll have to wait for the next issue of Vallarta Lifestyles to read about them. This one just seemed too important to hold back until then.

Vallarta Real Estate Sales up in March

April 4, 2011

The March report for sales for Multi-List Vallarta, a marketing and MLS service for the Puerto Vallarta and Riviera Nayarit region, showed a substantial increase over what the average usually is. 22 sales were reported for MLV (re-sales only, MLV does not include new sales for real estate developments), which is double what is usually reported. Nine of these sales originated from Tropicasa Realty, which had an exceptional month.

Is a trend emerging here? I contacted Wayne Franklin, the owner/agent of Tropicasa Realty, to ask him. I always enjoy a conversation with Franklin about real estate in the region, as he has seems to be able to get his head up and above the day-to-day operations and give a good, objective perspective to what he sees is going on. As well, he comes with years of real estate experience in both markets, the USA and here in Vallarta. It may be that Tropicasa is a little ahead of the curve on sales, as not everybody is currently experiencing the same level of activity.

  1. “We input our sales data into the system, which not all agencies are doing.  So the data could be somewhat skewed. (My note: This has been an ongoing problem for years; to get agencies to report their sales. There is really no other way of obtaining the information if they don’t report them. This is now increasingly more difficult as there are now two MLS systems with not all real estate agencies belonging to both MLS systems. Hopefully, though, this will get worked out in the future, so go statistical information will be available.)
  2. Some clients are just sick and tired of being sick and tired.  In other words, they’re full of the drivel that’s in the media and they just want to get back to making life decisions for themselves. (My note: I agree with Franklin, people are getting tired of the sensationalism, especially when they come down here and find out the situation is not all like its being portrayed in the media.)
  3. Some clients are tired of the US government and the decisions being made and are looking at exiting the madness, temporarily or permanently.
  4. Other clients are simply retiring earlier than expected, thinking that it doesn’t look like things will improve in 5 years when they would normally be retiring, so they’re just making the decision to do it now.
  5. I have seen in the past year the buying public being more investor-minded people, as well as at the other end of the spectrum, the high net worth clientele coming into the market.  Typically seen as the “smart money”, these people I think are seeing an outstanding and unique opportunity that has not existed in this market, and are taking advantage of it.  Typically, when the investors start coming back into a market, that’s the beginning of the return.
  6. Also, keep in mind that there is only a small portion of the market as a whole in Vallarta that was severely affected by all of this.  The remainder stayed at relatively retail levels and wouldn’t move from there.  Clearly, those properties haven’t yet sold.  BUT what will end up happening is that when the distress properties or financially challenged owners have been able to sell, then all that will be left is the retail inventory.  It will then begin selling as there will be no alternatives for the investor market.  I certainly see that taking place in the next 18-24 months, if not sooner. (My Note: My concern with this is that a “Shadow Market” has been created, of people who have not listed their homes because they can’t get the price they want, but still want to sell. What does this consist of? Is it significant?)
  7. As to volume, just as an aside, including a couple deals that I’m currently negotiating, in Q1 of 2011, we sold the same volume that we did in 2010 … FOR THE YEAR!  It IS a whole new ballgame this year.  There IS hope!

Excellent news from one real estate agency in the region. In the next couple of months I’ll be talking with other agents to get their perspective for our regular Real Estate Trends article that is featured in the Summer/Fall issue of Vallarta Lifestyles, as will be available here as well.

With regards to the sales that did take place in March, the average sales price is still down with the condominiums averaging less than $300,000 and interestingly, homes still lower with an average of less than $250,000. The highest priced sale was $685,000; the lowest was $58,000 – there really is something in this market for everyone’s budget!

March 4, 2011

I recently posted an article written up in The Economist that did give a very positive portrayal of how tourism promotion is handled by the Mexican government. Here’s some highlights of another article, but much more positive, that was featured in The News and features an interview with Mexico’s Secretary or Tourism, Gloria Gevara.

“The Year of Tourism in Mexico is one of the greatest strategies of President Calderón. We began the implementation of this program in 2010, because Mexico has great options to offer for tourism. The sector accounts for 9 percent of the country’s GDP and creates nearly 7.5 million jobs, both directly and indirectly, and it is also the third most important industry in the country,” she noted.
“However, if we compare ourselves to another tourism economy like Spain, a country that is smaller than Mexico, and if we consider its tourism options, geographical position and other important aspects, we can corroborate that for them, tourism represents 12 percent of their GDP and it is their first source of income. This means that Mexico has even better opportunities to improve the tourism industry and create millions of jobs, which will ultimately boost our country’s economy,” she added.
She said that the aim of the Year of Tourism in Mexico is to create a comprehensive project that will strengthen the industry. The program is part of a strategic plan that will include special activities and events in 2011, which will further develop the sector. “The President, tourism representatives, governors, legislators, investors and the Secretary General of the World Tourism Organization have already signed an agreement. The objective of said agreement is to implement several programs and make a commitment with the private sector, functionaries and legislators to make sure that everyone participates in making our country a better place,” she said.

Are there any specific goals to evaluate tourism promotion in the Year of Tourism in Mexico?
Most certainly. We’ve set a series of goals that we want to achieve regarding revenue, arrivals and the amount of national and foreign visitors. Nevertheless, we also have long-term goals, which will be achieved over a period of eight years. During this period of time, we think that Mexico will be able to make it to the list of the five most visited countries in World. Currently, were are No. 10 in most visited countries and No. 19 regarding economic spillover. Our goal eight years from now is to be No. 5 on both lists. But in order to do that, we need a continuous growth of 15 percent in the tourism sector annually. In 2010 we had 22.6 million visitors, but by 2018 we want 50 million. True, it’s more than double so we need continuous growth to that, but we’ll deliver.

There is this perception that Mexico is a violent country, and public opinion seems to fuel this perception. How has this affected the tourism industry?
Well, we do have an important challenge, and we cannot ignore it any longer. We are aware that Mexico is going through a harsh situation, but insecurity is an evil that has affected every single country. You can see these situations everywhere, and both tourists and the local population are affected. There are countries like Egypt that depend a lot on tourism, and we already know how things are going there. Another example is Russia that has suffered a lot due to the events of the past few weeks.
“In 2008, 5.8 million US citizens visited us by air, in 2009 we had 5.3 million, and in 2010 we had 5.9 million. What does this mean? Well, it means that we had an increase of 10 percent compared to last year and almost two percent compared to 2008. We did all this in spite of the alerts. We also see lot of Canadian tourists. In 2001, 1.1 million Canadian citizens visited us by air, while in 2009 we had 1.2 million and in 2010 almost 1.5 million, which means an increase of 20 percent compared to last year and 29 percent compared to 2008. The US and Canada account for 74 percent of the total of tourists that visit Mexico, but we did see that other countries visit us as well.

What is the reality Mexico is facing with other countries regarding security?
Well, we have to put things into context. When people overseas talk about Mexico, they usually refer to Cancun, but generally speaking, people talk about the entire country. The same thing happens with Colombia, people talk about the entire nation, it’s rare to refer to Bogotá, Medellín or Cartagena. We can also say the same about Brazil, we talk about a whole. However, when we talk about the US, we do mention specific places, including Washington, Arizona, Las Vegas and others. We must mention, though that, in spite of the period of turmoil of sorts the country is currently experiencing, many of our tourism hot spots are safer than most tourist areas in the world. People don’t really talk about that, but it’s true. Yucatán is a perfect example. The state is really safe, far better than security rates in some European countries. Campeche is another case, Chiapas as well. I insist, this is a difficult challenge that we must face, but if we compare our country with several island nations in the Caribbean or other Latin-American countries, our security standards are way above them. We’ve seen, unfortunately, that countries that did not know much about us in the past, now think of us as a nation of violence and insecurity, so we must make sure that we tell people that Mexico is much better. We must tell them that our reality is different from what they think it is.
How is Mexico supposed to react to the alerts issued by several countries?
We must tell the people how well Mexico really is doing. We are a big country, and we take that for granted, but few people know that we are the 14th economy of the world that has a huge area, so it’s important to put things into perspective. President Calderón has urged us to stay united and say good things about Mexico. We cannot ignore the situation we’re currently living in, but it is important to tell the people about the positive things. In 2010, 22 million people visited us, and nothing amiss happened to them. They all had the time of their lives, so much so, that many of them choose to stay here, forever. The bad thing is that no one informs the public about that. Many Mexicans think that the reality is extremely harsh, but it’s not. People in several states can walk around in the middle of the night and visit tourism hot spots without any worries.

You can read the full article here.




Debunking Vallarta’s High Inventory Rumor

March 2, 2011

There’s been a lot of talk around town about how much inventory of homes and condominiums, primarily condominiums, is currently on the market. The most commonly heard number is somewhere between 7,000 to 8,000. Unfortunately I believe I’m responsible for this. For a few years, during the boom years of Vallarta real estate market (2003-2008), we did a survey of real estate developments to find out how much real estate they were producing and putting on the market and how much of it was selling. When we first began doing this we would take the gross number of units the project entailed, not considering that for many developments the project would be released in stages. But back in 2007 units were selling so fast that often the project was sold out before it was completed. Some sold out before construction began. So it was not a wrong assumption.

But that changed as the market started slowing down in 2008. We therefore decided to ask instead, how many units they currently have on the market that are actively for sale, not the total number of units once the project would be built out. To give a couple of examples, Punta Mita will have 1,000 homes when completely built out, but currently there are probably less than 100 actively on the market. Another involves the grandiose development that Homex was going to be built on the North Shore of the bay with 1,000 homes planned. In 2007 we counted all of those homes in the overall inventory of units available in the market. Well, that project never even got off the ground, so the inventory there is now “0”.

In 2007 we had established, using the “include everything” calculation method, there were 7,250 units currently on the market. However, in 2008 we decided to only count “on the market” units. As the market had started to slow down, many developments had decided to either scale back or release units in phases. Some, such as Homex, were cancelled outright.

This took the number down to 4,200 in 2008. When we did the count again at the beginning of 2010 (for the past year of 2009), there were even more cancellations of projects. Taking away these and also accounting for sales that had taken place, we estimated the inventory for new products to be 3,500. We did, however, find it difficult to get actual numbers from developers. Our only way of calculating for some (some just outright lied – they didn’t want to say they hadn’t sold much), was by comparing what their current inventory was and and comparing it to what they had said it was the previous year. Some actually showed a negative number as they experienced cancellations. Because we weren’t getting back what we considered were true numbers, we decided not to do the survey this year.

There continued, however, to be cancellations of developments, or that were scaled back from what was originally considered. I would think, including sales that took place (and some did take place!), there would be now less than 3,000 new units on the market available to purchase. To complete this you need to add the inventory of existing homes that are on the marketing, which currently is around 1,150 properties, which gives you about 4,000 units on the market.

In a previous post I talked about a “shadow” inventory. We have no idea what this may encompass, but it certainly isn’t anywhere near 4,000 to get the 8,000 units on the market, as goes the rumor. A guess may be upwards of 50% of the MLS, which would be less than 600 units, or then a total of less than 4,600 units. But, for what’s available right now, listed for sale, the number would most likely be 4,000.

Still a lot, but manageable. It will, however, take a number of years to go through this. In 2007, the top of the market, there were about 2,000 sales for new and re-sale properties. This dropped, however, by 50% in 2008.

Its going to be awhile before there’s a need for any new projects. And for those that do decide to go ahead, they better be suited for this market; under $250,000, minimal amenities and small unit sizes. Those projects offering 2007 product lines made up of over-size units, over the top amenities with an exorbitant price tag, are going to be with us for awhile.

Hope this helps dismiss the claims of the inventory rumor that’s making its way around town.

An early-in-the-year Perspective

March 1, 2011

So far this year seems to be one that in the fall, a number of real estate professionals remarked would be a year of transition with not a lot of activity, but moving from the worst part to an improving market. It seems though, that the market isn’t really so much recovering as it treading water at the bottom of the cycle curve as it works through the excess inventory currently on and off the market.

I say “off the market” as I believe there is a “shadow” market, an inventory of properties of homeowners that would like to sell but have held off because of the lack of activity and hence, no idea as to what the fair market value of their home may be. If there aren’t any sales of properties similar to yours, how can you justify what it is worth? It takes a sale to make a comparable, and there have not been a whole lot of sales.

Exactly how many properties would this consist of? I have no idea. But it came up from watching the inventory of the MLS service Multi-List Vallarta. For the past two years the inventory has been very consistent with around 1,100 re-sale property listings (there’s about another 900 new property listings in Multi-Dev Vallarta – properties offered by real estate developers). With the re-sales, we see about 100 new listings come onto the market each month. But we are only seeing 15-20 sales taking place during this time. So what is happening – are sales not being reported? That’s part of this, but certainly not all of it. I think the majority are homeowners who have gotten tired of seeing no action on their homes so they have allowed it to expire, or, thinking its the real estate agent’s fault, listing it with another agency (which gives it another new, unique MLS number). The one’s that decide not to list again are just sitting on the sidelines, waiting for the market to recover and in the meantime, using or renting out their property.

There’s also a form of shadow market with developers. The inventory most developers now place in the MLS are those that are ready, or will be ready, to deliver in the near future. They are not entering in the MLS future planned phases. And there are a number of developments in this situation. This form of “shadow” market is not a severe, however, as the units haven’t been started yet therefore would not add to the overall inventory of properties on the market. They are just “planned” for the future.

Although this year is an improvement over last year, with more sales taking place, I don’t believe this can be construed as a recovery. Properties that do sell average time on the market of nearly a year. There is a substantial difference between the initial list price and eventual sale price. Many properties are “chasing the market” by continuing to reduce their listing price, trying to find what currently is fair market value.

Most activity seems to be in the under $250,000 range, for both homes and condos. Actually the average sale price for a home is less than the average sales price for a condominium ($250,000 for homes and $333,000 for condominiums in 2010). But when you get over $250,000, and especially over $1 million, the bottom becomes more difficult to determine.