“There’s practically no inventory in Mexico City,” said Russek, chairman of the country’s third-largest homebuilder by market value, in a telephone interview from the Mexican capital two weeks ago. “People are definitely a lot more optimistic now that employment is recovering.”

Homebuilders are poised to rally as Mexican jobs rise to a record and government-subsidized mortgages boost demand, according to Alejandro Garza, a money manager at Emerging Markets Management LLC, and Ben Laidler, head of Latin America strategy at JPMorgan Chase & Co. The Habita index of six Mexican homebuilders including ARA, Urbi Desarrollos Urbanos SAB, Desarrolladora Homex SAB and Corporacion GEO SAB has fallen 14 percent this year, compared with a 0.2 percent gain for Mexico’s benchmark IPC Index.

“We are very bullish on the housing sector,” said Garza, who helps manage $12.7 billion in equities at the Arlington, Virginia-based company. “The uptick in the domestic economy should also be very favorable for the homebuilders.”

Jobs may surpass the record 14.48 million this month, Labor Minister Javier Lozano said, as Latin America’s second-biggest economy recovers from a 6.5 percent contraction in 2009, the steepest slump since the 1930s. Mexican Finance Minister Ernesto Cordero said in an interview last week that the government may increase its 4.1 percent growth forecast for this year.

Year’s Job Growth

Mexico added 513,373 jobs in the first half, reaching the central bank’s forecast of 500,000 to 600,000 new positions for all of 2010, after losing 181,271 positions last year. The data in Mexico include only jobs that guarantee pension and health benefits and require workers to contribute to the housing agency.

Economy Minister Gerardo Ruiz Mateos said in an interview last month that Mexico probably will add about 750,000 jobs this year by boosting manufacturing sales to the U.S., which buys about 80 percent of its exports.

Joblessness in Mexico declined to 5.1 percent in May after reaching 6.4 percent in August 2009, the highest since records began in 2000. In Brazil, the unemployment rate rose to 7.5 percent in May from 6.8 percent in December, the lowest since records began in 2001.

The Habita index was trading at a 19 percent discount relative to the IPC index yesterday. The two indexes on average traded at a similar valuation during the past five years.

Impatient Buyers

The MSCI Mexico/Consumer Discretionary Index, which includes Homex and Urbi, will outperform the broader IPC index this year, said JPMorgan’s Laidler. The IPC will rise 20 percent to 38,500 by year-end, he said. He doesn’t have a forecast for the Habita index of homebuilders. Urbi will gain 50 percent to 37 pesos by the end of the year, Laidler forecasts.

Urbi rose 2 percent to 24.64 pesos at 4:10 p.m. New York time in trading on the Mexican stock exchange. Homex advanced 0.5 percent to 57.91 pesos, while GEO climbed 2.4 percent to 34.20 pesos and Consorcio ARA rose 0.3 percent to 7.99 pesos.

Alma Beltran, a spokeswoman for Urbi, Mexico’s largest homebuilder by market value, didn’t respond to requests for comment. Alejandro Haiducovich, a spokesman for GEO, the country’s third-biggest homebuilder, declined to comment.

Housing Demand

Ahumada of Consorcio ARA said overwhelming demand caused his company to lose sales in recent months when agents told customers there was a six-month wait for some new developments in the capital to be completed. Demand remains slow in some parts of the country, such as tourist destinations and areas where drug-related violence is high, he said. Total sales increased 2.2 percent in 2009, according to company reports.

Sales at Homex will increase as much as 14 percent this year, following a 3 percent gain in 2009, Chief Executive Officer Gerardo de Nicolas Gutierrez said in an e-mail. The company, Mexico’s second-biggest homebuilder by market value, added 2,000 jobs in the first quarter, he said.

“The improvement in job creation and recovery has a positive impact on domestic demand and consumer confidence,” Gutierrez said. “That has a positive impact on the consumption of goods and services such as housing.”

The jobs recovery is giving the government’s housing agency, known as Infonavit, more capital to provide mortgages, Homex Chief Financial Officer Carlos Moctezuma said on a conference call last month.

Regional Jobs Growth

Mexico’s job growth still trails that of Brazil, which forecasts 2.5 million jobs this year. Mexico has added 819,953 jobs since President Felipe Calderon, who campaigned as the “president of employment,” took office in 2006. Brazil, with double the population of Mexico, created 5 million jobs in that period.

There are signs that consumer demand still lags behind the broader economic rebound. Retail sales unexpectedly fell 0.1 percent in April from a year earlier.

Mexico’s economic growth probably will be less than in Brazil, where the central bank expects a 7.3 percent expansion this year. Peru’s central bank expects growth of 6.6 percent, while Colombia’s government forecasts 3 percent.

Mexico had a housing crisis after the peso devaluation in 1994 sent interest rates surging, causing widespread defaults. There’s little risk of a bubble similar to the ones in the U.S. and U.K. in 2006 and 2007 occurring now because homebuilders and banks learned their lesson in the 1990s, said Carlos Hermosillo, an analyst at Mexico City-based brokerage Vector Casa de Bolsa SA who covers 12 homebuilders and infrastructure companies.

Housing Shortage

At the end of 2009, Mexico had a housing shortage of 8.9 million units, according to the latest report from the agency in charge of developing Mexico’s mortgage market, Sociedad Hipotecaria Federal. The figure is the broadest measure of housing needs and includes families without a residence as well as those living in homes that are overcrowded or in ill-repair.

In the U.S., the number of contracts to buy previously owned homes plunged 30 percent in May from the prior month, the biggest decline in records dating to 2001, the National Association of Realtors said July 1. A collapse in the subprime mortgage industry, as well as reduced consumer confidence, has weakened demand for real estate.

Jorge Alberto Moreno, a Mexico City resident who was hired last year by Samsung Electronics Co., said the economic rebound is providing him with security. He plans to purchase a new home with his wife and son in the next year.

“We’re leaving the crisis behind and the situation is a bit more stable,” said Moreno, 32, who works in Samsung’s marketing department. “This gives us more confidence to make these kinds of decisions that you wouldn’t make otherwise.”

–With assistance from Thomas Black in Monterrey, Iuri Dantas in Brasilia, John Quigley in Lima and Helen Murphy in Bogota. Editors: Brendan Walsh, Brenda Batten

To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net; Jonathan J. Levin in Mexico City at Jlevin20@bloomberg.net

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

Article Source:
http://www.businessweek.com/news/2010-07-13/mexico-housing-recovery-signals-gain-for-homebuilders.html

Read the article here.

What I liked about this article was the emphasis on how a home is basic human right and that Mexicans look at their homes not as investments, but as…well, a home.

By Terence Reilly, MEXLend Mortgages (originally published in the Vallarta Tribune, March 2009)

As interest rates in the US decline, many people are curious as to why the rates for mortgages in Mexico remain the unchanged.  The short answer is that the United States and Mexico are two different countries with two sets of circumstances. Many people think of Mexico as a southern extension of the U.S., but it is not. If Swiss nationals can buy property at a 1.5% interest rate in Switzerland, would they be able to match that rate on a purchase in the US?  The answer is…of course not!

That’s the simple answer but there are several reasons why US cross border lenders set their rates higher. First, these loans are for second homes only.  If you were to apply for a second home mortgage right now in the US, you would pay a premium. If the 30-year fixed rate were 5.5% on a primary residence, the bank would add one or two points (depending on the bank) to compensate for the added risk of a second home, bringing your rate in the US for a vacation home up to 6.5%-7.5%

Why are second home mortgages more expensive?

Lenders know that if a borrower gets into financial trouble, he or she will protect their primary residence and dump the vacation home.  It’s that simple.

Many borrowers in the U.S. cheat on their loan applications, stating that their second home is a primary residence.  If found out, either through mailing records or tax records, the bank will notify you that you are in non-compliance with the terms of the loan and will force you into a higher interest rate.  But because cross border US dollar financing in Mexico is ONLY for second homes, there is no way to cheat on the loan application by calling it your primary residence,.

Further, if your lender is a U.S. entity, they are conducting business in a foreign country which adds additional risk and cost.  While purchasing in Mexico is a safe investment, if a borrower were to default, the costs for the U.S. lender to hire Mexican legal council to coordinate a foreclosure and to pursue collection are much higher and time consuming.

In short, the greater the risk is perceived by a lender, the higher the interest rate.

When considering a mortgage in Mexico, note that the average Mexican lender is charging 10% to 14% interest on their mortgages. With cross border lending, US citizens and Canadians are getting a huge break on the current interest rate of the country in which the property is located.

Also, there is no reason or incentive for lenders to match the artificially low rates that are being offered in the U.S. The current low interest rates in the U.S. are an effort to prop up an ailing economy and to aid the housing industry.  These are not normal interest rates and have not been since the year 2000.
Some people may consider the option of obtaining a home equity line of credit or cash out refinancing on their primary residence in Canada or the US to take advantage of lower interest rates. However, with real estate values plummeting, is it worth the risk of getting into an upside-down position on your primary residence to save a few interest points?  In the majority of cases, it is not. It is far more advantageous and conservative to obtain a loan on your Mexican property and use it as collateral while leaving the equity in your primary residence intact.

The great news is that US dollar loans are available and are readily accepted in Mexico.  They allow the borrower to leverage their investment and keep more cash on hand.  In the current economic climate having extra cash on hand and a lending partner for your Mexico real estate investment is a winning situation.

MEXLend, Inc. is a Mexican mortgage brokerage that currently represents 20 different lenders offering more than 300 different loan options in Dollars and Pesos for buyers looking to purchase vacation or investment property throughout Mexico. MEXLend can be reached at 322-132-7991 (in Vallarta), 917-779-9061 (while in the US or Canada) or go online at www.mexlend.com.

This is good news for those who have bought or are interesting in buying property in Mexico and then renting it out when they aren’t using it. Condo rentals are already popular with regular visitors and can be a much better value than renting hotel rooms especially if you are staying for a longer visit or have a large group. There are already 18,000 more condos than there are hotel rooms in Puerto Vallarta however more than three million people visit annually.

In this recent article, it outlines that airfares have been dropping by an average of $53 per ticket and are expected to continue to drop. More interesting is that Mexico holds three out of the top 10 international destinations being booked through Travelocity. Cancun, Puerto Vallarta and Mexico City are all listed.

MEXLend works with lenders all over Mexico and can get you a loan on almost any property, anywhere in the country!

With mortgages available for most properties in Mexico, it’s still a possibility to invest now and maintain liquid assets.

Fitch ratings story on Reuters: http://www.reuters.com/article/marketsNews/idUSN1047004120081110

http://www.banderasnews.com/0810/nb-pvtourism.htm

Fortunately, the part about most purchases being cash-only is no longer true. While it used to be that all property purchases were cash deals, the rapidly expanding mortgage market now offers numerous options to both foreign and Mexican national investors.

Says Terence Reilly from MEXLend, “While it’s true that in the past the majority of real estate transactions have been done in cash, now we are able to offer both peso and dollar mortgages to people wishing to invest in Mexico.  The vetting process that the property must undergo to be deemed financeable by a lender, ensures the safety of the buyer´s investment.  In other words, mortgaging a property makes it a more sound investment than a cash deal.”