Enormous drug-related violence. Struggling economy. Corrupt political class. Static interest rates. Yet Mexico’s house prices rose by 9.19% during the year to Q2 2019, according to the SociedadHipotecaria Federal (SHF). Adjusted for inflation, house prices increased 4.78% y-o-y in Q2 2019.
On a quarterly basis, house prices rose by 2.44% (2.31% inflation-adjusted) during the latest quarter.
What’s even stranger is that this sudden take-off of the housing market comes after Mexico’s housing market has suffered prosaic growth for a decade, in real (inflation-adjusted) terms, despite strong nominal growth:
The secret is Mexico’s enormously strong domestic market, particularly the rising middle class. In 2018, the country’s middle class was estimated to account for almost half of the total households, at about 16 million. They are expected to continue growing, with about 3.8 million more households projected to move into the middle class by 2030. Moreover, most Mexicans who move generally prefer to buy rather than to rent. Around 82% of Mexicans want to buy a property, as opposed to 18% that prefer to rent, according to Lamudi’s recent Real Estate Market Report 2018.
Foreign demand is also rising again. American and Canadian buyers are returning to Mexico, after a several-year slump, thanks to low oil prices and the strong US dollar, pushing home values up.
The Mexican housing market is not driven by speculators. There are many developers, and it is highly competitive. Interest rates are (relatively) low in the social sectors, due to subsidies. Housing demand in Mexico is "real", says Citibanamex’s Executive Director of Mortgage and Automotive Credit Ricardo García Conde, meaning that the house price movements in Mexico are mostly due to supply and demand with a minimum percentage of speculative purchases.
While the general outlook for Mexico’s housing market remains robust, the country’s ailing economy, coupled with the uncertainties surrounding the ratification of NAFTA (now rebranded as USMCA) and the ongoing US-China trade dispute, might adversely impact the market in the coming months.
Contrary to President Andrés Manuel López Obrador’s promise to deliver 2% growth this year, the Mexican economy actually shrank by 0.4% in Q3 2019 from a year earlier, following a y-o-y contraction of 0.8% in Q2 2019 and a growth of 1.2% in Q1. As a result Banco de Mexico (Banxico) recently slashed its 2019 economic growth forecast to about 0.2% to 0.7%, down from its earlier projection of between 0.8% and 1.8%.
