There was an interesting article in the San Diego Union-Tribune on Wednesday highlighting an assessment of the real estate market in northern Mexico from the Mexico Resort Development conference held earlier this week in Carlsbad, California. It highlights some of the challenges northern Mexico resort areas – such as northern Baja and Puerto Peñasco (Rocky Point) – face going forward in light of the weak southwestern U.S. real estate market (which supplies most of the buyers in these resort areas) and talks about how a slowdown in northern Mexico is healthy in some respects and is expected to be more short-lived than the market downturn in the U.S.
Conference attendees predicted that the slowdown would “spur a better quality of development” that provides more amenities and mixed-use projects (definitely a need in Puerto Peñasco and something we are starting to see more of). They also raised an interesting point highlighted in the article about market demographics:
Unlike the housing market meltdown in the United States, which has been partially caused by young first-time buyers failing to make payments on their adjustable-rate mortgages, the Mexican slowdown is more associated with baby boomers who pulled equity out of high-priced property to buy retirement or vacation homes in a sunny climate. The condos, townhomes and houses range in price from $150,000 to more than $1 million.
The boomers’ monetary shortfalls are more temporary, the experts said, because they have more equity and are inheriting money as their parents pass away.
“Baby boomers have a lot of wealth. You’ve got a lot of people who are going to have time and money to do stuff,” said Textron Financial senior vice president Adam Greene. “The feeling is there’s a lot of money waiting on the sidelines.”
Over the past decade, the number of such buyers settling into active-lifestyle communities in Mexico has increased from 200,000 to between 600,000 and 1 million. About 100,000 U.S. citizens retire to Mexico each year.
Property sold in Mexico also tends to be in the luxury category and, thus, more immune to impacts from the current U.S. housing situation.
“There’s a temporary downturn in sales,” said John McCarthy, chief executive of Mexico Leisure Real Estate Development Partners, “but I think the demographics are there. And once the psychological effect of the subprime crisis passes, the market will come back.”
Puerto Peñasco has certainly seen a slowdown over the last year, particularly in new condominium sales. But the developers in town are taking the opportunity to catch their breath and catch up on providing many of the resort destination amenities retiring baby boomers demand – like spas, restaurants, bars, golf and shopping. And the Sonoran and Peñasco governments are also working on improving the city’s infrastructure systems through the recently finished refurbishment of the city’s fresh water well system, improvements to the electrical capacity of the city and new roadway improvement projects.
Combined with the improved accessibility to Puerto Peñasco that is starting to emerge through commercial flights to Los Angeles, the nearly completed coastal highway, the soon to be open international airport and the announced expansion of the Lukeville border crossing, these improvements will provide the backbone for Puerto Peñasco as it moves into its second long-term growth phase – when the baby boomers mentioned in the article begin to again jump back into the second home vacation market.
Used with permission from Paul P. Kingsley. Mr. Kingsley is a founding member of The Primestone Group LLC (http://www.primestonegroup.com) and writes a business, real estate and tourism blog about Puerto Peñasco at http://www.puertopenascopost.com.