Will U.S. Real Estate Recession Affect the Riviera Maya of Mexico Market in the Mexican Caribbean?

Annual existing U.S.A home prices declined in August for the first time in more than a decade as U.S. home sales fell for a fifth straight month. The year-over-year drop in median sales prices represented a dramatic turnaround in fortunes for the once high-flying housing market, which last year was posting double-digit price gains. “Pop goes the housing bubble,” said Joel Naroff, chief economist at Naroff Economic Advisors. He predicted prices will tumble farther as home sellers struggle with a record glut of unsold homes. The National Association of Realtors reported this past Monday that sales of existing single-family homes and condominiums dropped 0.5 percent last month to a seasonally adjusted annual rate of 6.30 million units. That was the fifth straight monthly decline and left sales 12.6 percent below the pace of a year ago.

Okay, so how will a now confirmed U.S. slowdown affect the real estate market here in the lovely Riviera Maya?

Well, to answer that question first we need to understand what’s really happening in the U.S. First, it appears that the slowdown in U.S. sales meant that the inventory of unsold homes rose to a record 3.92 million units at the end of August. At last month’s sales pace, it would take 7.5 months to clear out the backlog of unsold homes, the longest stretch since April 1993. The median price of a home sold last month fell to $225,000. That was down 2.2 percent from July and down 1.7 percent from August 2005. That marked the first year-over-year drop in home prices since a 0.1 percent fall in April 1995.

Is this a temporary issue or is this the future of doom and gloom in the Riviera Maya? Find out what the areas 8 Top Pros say. Read on……

mls4rivieramaya8Last year, when the five-year U.S. housing boom was reaching its peak, median prices posted a string of double-digit gains on a year-over-year basis. The median price is the point where half the homes sell for more and half for less. David Lereah, chief economist for the Realtors, predicted price declines would continue for the rest of this year as sellers adjust asking prices downward in light of the inventory glut. “This is the price correction we’ve been expecting,” Lereah said. “With sales stabilizing, we should go back to positive price growth early next year.”

But some home sellers around the U.S.A. worried that cutting prices may not be enough, have been offering incentives to attract buyers, including in some cases new cars. Dave Armon, who lives in the New York City suburb of Pelham Manor, said he started out asking $1.6 million for his six-bedroom Tudor-style home three months ago — below the $1.82 million a neighbor received — but has slashed the price by $300,000 because he has attracted few interested buyers. “l am sitting here thinking maybe if I buy a car and park it out front with a bow on it, that will help,” he said.

Could this happen here in the Riviera Maya? Will this type of potential buyer forgo buying here in the Riviera Maya now that his profits have disappeared?

We asked the areas 8 Top Professionals to opine and share their thoughts about this market trend and how it affects our robust real estate market here in the Riviera Maya.

RANDY BONDS – BRIC INTERNATIONAL “This decline in existing home prices was expected by everybody in the market.” say Randy Bonds from Bric International, a major developer who has several large projects in the Riviera Maya. “Real Estate is a cyclical market just like the stock market and there will always be ups and downs in the trends. This correction that we are experiencing is greatly needed to put some sort of normality in the appreciation. The Riviera Maya, as well as the rest of the world, is going to be directly related to what is occurring in the US. These are some of the savviest purchasers all around the world and when they are trying to figure out their next move in the states and where the market is leaning they are more likely to avoid the foreign market. The Riviera Maya over the last two years experienced some of the highest % returns out of any other region in the world. This doesn’t go without certain consequences following when most investors are priced out of the market. The next two years are going to be very important to see the reactions of the builders and owners of condominiums and houses in this region. Builders that are under funded and in the middle of a build are going to be running into financial disarray with the lack of funds for completion and therefore selling at a great discount or packing up and leaving the project incomplete. Investors that currently own with the intention of reselling for a great profit are going to be a little disappointed with the buying market. We will start seeing another buyers market when builders and current owners start the price war downward. Investors, builders, and owners need to realize that patience at a time like this is very important and this region is going nowhere and is still one of the most beautiful and highly desired areas for real estate in the world. Looking back at the stock market in the early 2000’s and where it is now is not much different than what we are going to see in the real estate market over the next 2 – 3 years. This is a time to relax and reevaluate the up and coming years.”

GARY WENDT – PLAYA CITIZEN From downtown Playa del Carmen, Gary Wendt from Playa Citizen, a broker builder says “Most people know that the real estate market, especially home building, has carried the economic growth in the USA (after removing oil). This has been going on for years. The housing sector has also generated nothing short of an amazing run UP of VALUE. Thus, a little downturn should be expected and not feared. And there’s the rub. Oh, pesky human nature! We humans just can’t help but look for things to fear and fear is the fuel for self-fulfilling prophecies and politicians. So who knows for sure what’s next. I believe in cycles and location, location, location! Except for oil and real estate, the world economy has been positioned on the edge of a recession for 6 years. Recession is not good for business anywhere in the world. It is still true that as the USA goes, so goes the rest of the world. Here in Playa del Carmen? Well, I am not an economist. But I slept at a Holiday Inn recently (in Puebla – Central Mexico) and I believe that tourist properties situated along our most beautiful caribbean sea will suffer less than average in a recession. In fact, they will suffer much less than all the rest during a recession. It’s also true that a great location is the best hedge against cycles in real estate. So, personally, I look for sales to slow a bit. At the very worst, should a recession actually arrive on the scene, prices probably will flatten. Then, as experienced in mid-2002, less than a year after 9/11 when this area of the world rebounded with a frenzy of interest and record growth and sales, we’ll bounce again faster than the rest. Anyway, I suggest buyers and sellers plan for the long run in their investment horizons. Farsightedness made Warren Buffet rich. Remember he said,”when everyone else is selling, I’m buying”. To me, this levels a recession. Not EVERYONE panics and the calm people who plan for success profit. pinetree hill