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REAL ESTATE; BUSINESS AND INVESTMENT
San Miguel real estate: DOA or just taking a breather?
By Jim Karger and
It doesn’t take much presence to observe the dramatic increase in the number of homes for sale in San Miguel. Where once it was difficult to find even a single home for sale on some blocks, you can now find corners where three of the four homes are sporting multiple se vende signs. Indeed, we picked up an Atención recently and found 41 sellers of real estate (mostly agencies but plenty of individuals, too), 181 separately identifiable properties, and 14 developments, and this was just display advertising—not including the classified ads.
Considering this is mostly “gringo” property, and considering not everything is advertised each week in Atención by every real estate agency, and considering that even the most optimistic (or pessimistic) estimates are that 10,000 gringos reside here full-time, we are left with an astounding, some would say, disturbing, amount of inventory on the market. Of course, because there is no multiple listing service in San Miguel that tracks sales prices or even a way of checking public records to determine actual selling prices of homes, one must use their eyes and common sense to come to the conclusion there is an ever-increasing inventory of homes in our town.
The “why” is simple and straightforward: the meltdown in the US housing market. Under the heading “when the US catches a cold, Mexico contracts pneumonia,” here are the stark facts about US housing:
New-home sales in the US fell in February to the lowest level in almost seven years. The supply of unsold homes climbed to the highest in 16 years. And purchases dropped 3.9 percent.
The annual rate of new-builds hit 848,000, the lowest level since June, 2000.
The Federal Reserve has warned of the potential impact of the housing slowdown on the wider economy.
The number of unsold homes in the US has reached record levels.
In some of the hottest markets in the US, home prices have fallen 20 percent or more, many pundits saying no bottom in sight especially with mortgage rates on the rise.
In addition to the real estate bubble caused by too much supply and too little demand north of the border, there is also the sub-prime lending problem that is rapidly drying up liquidity in the US housing market with lenders suddenly discovering that it is not wise to lend money to people with no money or prospects of paying it back. The failure of several mortgage lenders sent the stock market into a tizzy a few weeks ago and smart money is on the volatility continuing for some time to come, at least until the housing situation sorts itself out.
What does all of this have to do with real estate in San Miguel? A lot.
Much of the upward pressure on prices in the San Miguel real estate market in the last several years had less to do with traditional supply and demand and more to do with the massive liquidity brought into the market by those north of the border who were able to cash out—for huge profits—their California 3-bedroom 2-bath ranch-styles they bought 30 years ago for pocket change. They brought their money to Mexico where even wildly inflated prices, in comparison, looked good. And so they bought.
Fast forward to 2007. There are still those north of the border who have plenty of equity in their homes but suddenly it is not as much equity as they once had, and no one wants to sell in a down market. Rather, the psychology that drives real estate markets into the ground is, “I missed the top. I’ll wait for the next one.” It is why tops come so infrequently—too many people deciding to hold their cards rather than sell at a price below what their neighbor got just a year ago. Because there will be fewer sales of existing homes north of the border in 2007, there will be fewer buyers interested in San Miguel or anywhere else for that matter.
And the same dynamic is present here. Those interested in bailing out of San Miguel at big profits (just like their neighbor did last year) are finding a lack of demand and many are holding their prices firm waiting for the “real estate market to come back.” This only assures that the market won’t come back—not anytime soon. Rather, the more likely scenario (in the short to intermediate term) will be more homes stacking up like so much cordwood. Combine that with the large number of new developments, many of which are destined to fail because their owners bought at the top, and you have an oversupply combined with a lack of demand exacerbated by a lack of liquidity. It is not a match made in heaven if you are a seller.
The same dynamic is one that investors have learned the hard way in the stock market—people buy when it is expensive and sell when it is cheap. Why? Two emotions: fear and greed—is why most traders lose money. People get greedy at the top and invest, and then get scared at the bottom and sell.
We have seen the greed factor in San Miguel real estate for the last several years—everyone who is not an artist here seems now to develop or sell real estate. That should have been the tip. When everyone is a developer, no one is a developer—for long. Now, over the next months or years, we will see the fear factor as inventories swell and sellers get afraid, finally to that point when the pain is simply too much to continue to hold and the prices hit bottom when those holding out for the next “top” all try to hit the door at the same time, ironically causing the next real buying opportunity.
Not a pretty scenario, but not necessarily fatal, either. In the longer term, 5 to 10 years perhaps, the largest bolus of baby boomers will be leaving their jobs and professions and many will be looking to live abroad, if only because the US isn’t fun to live in anymore—what with the prices, traffic, cookie-cutter living and fear-based politics. San Miguel, depending on how the city plays its cards, might be the beneficiary of this demographic rarity. On the other hand, if the city continues to do nothing about traffic in the Centro, permits developers to transmogrify the suburbs of the city into a sort of Disneyland of Mexico, and the prices for goods and services here continue to approach those in the US, San Miguel will end its reign as the place to be in Mexico and Latin America, if only because it is not San Miguel anymore, but just an expensive, overcrowded imitation.
Jim Karger is neither an artist nor a developer of real estate but a homeowner and investor who has lived full-time in San Miguel five years with his wife and nine dogs.
Raoul Rodriguez is a US certified financial planner and manager of the San Miguel law firm, Mexico Advisor.
Want to know more about the potential impact of the housing slowdown in U.S.?
See the following articles on the Internet:
U.S. Economy: Home Sales Drop to Lowest Since 2000:
http://www.bloomberg.com/apps/news?pid=20601103&sid
=aMTbblR6TX5c&refer=news
New-home sales fall to seven-year low:
http://www.marketwatch.com/news/story/
us-sales-new-homes-fall/story.aspx?guid=
%7BA1D8CD82%2D1EB9%2D4E46%2DBDF5%2DDB0BA246F1DE%7D
Mexico's Bolsa Declines on U.S. Housing Slowdown:
http://www.bloomberg.com/apps/news?pid=20601086&sid
=aRg4GQsCCjyw&refer=latin_america
[Housing] downturn expected to persist through much of 2007: http://www.theglobeandmail.com/servlet/story/LAC.
20061118.RHOUSING18/TPStory/Business
Fed's Moskow warns subprime mortgages could crimp economy:
http://www.chicagotribune.com/business/chi-070326moskow
,0,6516700.story?coll=chi-business-hed
No bottom yet for housing:
http://www.marketwatch.com/tvradio/player.asp?guid=
%7BA35B4C4F-0154-4A19-9778-91A9AC2E5125%7D
U.S. Foreclosure Filings Rise 12 Percent in February:
http://www.bloomberg.com/apps/news?pid=20601087&sid
=aq53ihHYHRPc&refer=home
New, existing home sales seen worsening:
http://www.marketwatch.com/tvradio/player.asp?guid=
{5B06EA77-9856-4FFD-A199-A052AF08B33E}
Foreclosures put US housing recovery at risk:
http://www.csmonitor.com/2007/0327/p01s02-usec.html
A Nasty Surprise on New Home Sales:
http://www.businessweek.com/investor/content/mar2007
/pi20070326_216707.htm
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