New Condos in Puerto Vallarta, Mexico

By: Jim Scherrer

Foreclosure, by definition, is the legal procedure for satisfying claims against a mortgagor in default who has not redeemed the mortgage; satisfaction may be obtained from the proceeds of a forced sale of the property.

There are many reasons why mortgagors may fall into default but historically it happens when the mortgagor loses his job, loses his health, or for some other reason is unable to make his mortgage payments in a timely manner.

Today, the majority of reasons for default are totally different. Many recent mortgagors were able to obtain loans with little or no credit history and little or nothing as a down payment. They received adjustable rate mortgages and if they were ever able to afford their monthly payments, they were no longer able as soon as the interest rate increased and consequently the mortgagee was forced to foreclose on the buyer. As the foreclosure rate in a given region started to increase, so did the availability of distressed property sales. Of course, an increased volume of distressed properties in the neighborhood resulted in a rapid depreciation of the neighboring properties. With the value of a given property well below its mortgage payoff balance, many mortgagors merely elect to abandon their property and walk away from their mortgage; thus the mortgagee is forced to foreclose on these borrowers as well.

This vicious circle of foreclosure events is currently occurring at an unprecedented rate in the US. Headlines such as "US Foreclosures Up 24 Percent in 1st Quarter "," US Banks Step Up Home Foreclosures "," Las Vegas Tops Foreclosure List", "Sun Belt States Lead Q1 U.S. Mortgage Foreclosures" and "Foreclosures May Hit 1.5 Million in U.S. Housing Bust" are seen in the news on a daily basis.

Okay, know that we fully understand the cause for and frequency of the recent foreclosures and knowing it's a buyer's market, perhaps, if you still have a little money left over after the recent stock market sell off, you might be considering shopping for a foreclosed property at a distressed sale price in a resort such as Puerto Vallarta, Mexico. If so, you might as well forget it; you'll not see a foreclosure sign in Mexico!

The following is taken verbatim from Condo.com, one of the major websites dealing in worldwide condo sales:

Mexico Foreclosures – Condo.com is the best way to find free foreclosures listings in Mexico. Find foreclosed condos, foreclosed condos, foreclosure properties and other foreclosure investment opportunities in Mexico. Search bank foreclosures, REO properties, preforeclosures, HUD homes and more foreclosures in Mexico. Sorry! There are no search results found.  No For-Sale listings available

Well, that pretty well sums up your opportunities to "steal" a nice condo in PV! There are numerous reasons why foreclosures are essentially nonexistent in Vallarta however the primary reason is that up until just recently, all purchases were done strictly on a cash basis. Mortgages are now available in Mexico but only with a substantial down payment. With a solid credit history and income stream, one might be able to purchase a property in Mexico with only 20% down, however most of the mortgages are with down payments approaching 50%. As you can imagine, it takes an awfully good reason to walk away from a property when you have that kind of investment in it! Consequently, with 98% of the properties owned outright and the remaining 2% with well funded mortgages, there are virtually no foreclosures in Paradise!

Because there are no foreclosures, there has been no significant depreciation of values in Puerto Vallarta. That's not to say that there's not been a leveling off in prices or that the developers are not more inclined to "negotiate" today than they were a year ago. To the contrary, prices on newly constructed condos have never been better than they are today and bargains can be found throughout the city. This is to some degree due to over building during the past ten year boom period and partly due to the reduction in prices of steel and other construction materials as well as the decrease in construction labor rates as the Peso recently devalued by 30% relative to the US Dollar.

For the reasons regarding foreclosures outlined above, you should never see your investment value plummet in Vallarta as it has in many desirable locations throughout the US. Because the North Americans have been recently hit so hard financially combined with the fact that the local developers have overbuilt, Puerto Vallarta is a true buyer's market. There are 1,000´s of new condos currently on the market in PV and with interest rates at an all time low, the time to buy will never be better.

Any North Americans still holding cash will never find a better time or place to invest it; besides, where else can you live in a climate better than Hawaii, 2-4 hours from home, all the amenities of home, as many or more activities than at home, and at a fraction of the price? So, why wait; come on down and explore the possibilities; just don't look for any foreclosure signs!

Jim Scherrer has owned property in Puerto Vallarta, Mexico for 26 years and resided there for the past twelve years. The mission of his series of more than 70 articles pertaining to retirement in Puerto Vallarta is to reveal the recent changes that have occurred in Vallarta while dispelling the misconceptions about living conditions in Mexico. For the full series of articles regarding travel to and retirement in Vallarta as well as pertinent  Puerto Vallarta links, please visit us at PVREBA.

Puerto Vallarta as see from nearby beach

By: Jim Scherrer

For more than 50 years, the de facto world currency has been the US dollar with many of the world currencies being pegged against it (some countries have even eliminated their own currencies in favor of the US dollar). As an example, Canadians feel a sense of wealth when the Canadian dollar is on par with the US dollar; the opposite when the Canadian dollar devalues to .70 US dollar, i.e., when the Canadian dollar will purchase only 70 cents worth of US goods and services. The following graph shows how the Canadian dollar has strengthened from $.77 US to $.96 US or by 25% during just the past seven months.

Canadian dollar versus US dollar--past 7 months

Currently, the global economy is changing and as the US dollar continues to erode, many foreign currencies have strengthened significantly relative to the green back. Consequently, savvy Canadians should now be looking at currencies outside of the US and evaluating their own newfound purchasing power in those foreign countries. For instance, the Canadian dollar has virtually exploded in value recently relative to the Mexican peso. The graph below depicts how the Canadian dollar has risen in value from an equivalent of 7.1 Mexican pesos in 2003 to 12.6 pesos today in 2009.

Canadian dollar versus Mexican peso--past 6 1/2 years

Now, let's compare this increase in the purchasing power of the Canadian dollar to the increase in purchasing power of the US dollar, both relative to the Mexican peso. The graph below clearly shows that during this 6 ½ year time frame the US dollar increased in value by a bit more than 20% relative to the Mexican peso whereas the Canadian dollar increased by a whopping 75%!

Canadian and US dollars versus Mexican peso--past 6 1/2 years

It's quite understandable, that toward the end of 2007 when the Canadian dollar reached par with the US dollar, the Canadians were major buyers of real estate in Mexico. However, by March of 2009, the Canadian dollar had slipped to a low of $.77 US and Canadian buyers were virtually eliminated from the Mexican real estate market.

Next, let's closely review the Canadian and US dollars relative to the Mexican peso during the past year. Because the recent strengthening of the Canadian dollar has far outpaced the US dollar relative to the Mexican peso, you'll see that during the past year, the US dollar has barely appreciated in value over the Mexican peso while the Canadian dollar has exploded in value by nearly 25%. The ramifications that this phenomenon has had on the Canadian purchasing power in Mexico are addressed below. 

Canadian and US dollars versus Mexican peso--past year

During the past decade many tourist zones and retirement havens in the resort areas of Mexico experienced exponential growth. Along with this growth came significant real estate price appreciation; so much so that real estate prices in many Mexican resort cities were no longer within reach of many Canadian retirees, especially when the Canadian dollar plummeted in value in 2008. Well, we have good news for you fortunate Canadians holding those wonderfully strong Loonies; that's no longer the case!

In Puerto Vallarta, real estate prices of recently built condos have dropped by anywhere from 20-35% during the past year alone. This reduction in value was caused mainly by the global recession, however the swine flu scare and the media hype over the border town drug war (1,200 miles away!) were also contributing factors. With the tremendous glut of unsold new condos recently introduced to the market by developers combined with the many condos that were purchased at pre-construction prices by speculators now just trying to recover their investment, PV is a true buyer's market.

Last year you could buy a $400,000 condo with all the amenities and breathtaking views for 10% off list price or for $360,000. Today, you'll have no problem finding that same condo offered at $300,000. Okay, that seems like a pretty nice savings of nearly 17% but remember, these Mexican condos are all priced in US dollars; Canadians must now evaluate these costs in terms of Canadian dollars! A year ago when the Canadian dollar was worth $.77 US, $360,000 US dollars was equivalent to $468,000 Canadian dollars. Today, with the same condo selling for $300,000 and the Canadian dollar worth $.96 US, it will cost only $315,000 Canadian dollars. That's a savings of $153,000 Canadian or 32.7% (as opposed to the apparent 17%) in just one year!

Until as recently as 4 years ago there were no mortgages available to any North Americans buying resort property in Mexico. At that time, a number of US based mortgage companies introduced mortgages to US citizens buying property in Mexico but not to Canadians. That all changed a couple of years ago when the major mortgage companies finally made the same mortgages available to Canadians. These fixed and variable rate mortgages require at least 20% down and can have terms for as long as 30 years at rates generally about two points above those in the States or at approximately 7% at this time.

It is the opinion of many that the Canadian dollar will continue to strengthen. After all, the Canadian banks didn't make all the foolish sub-prime no-doc loans that were made in the US, the Canadian unemployment rate is somewhat less than in the US, and Canada is rich with natural resources with worldwide demand. Knowing this, it seems only logical that having a mortgage in Mexico based on US dollars would be a very wise investment; it would be paid off with ever strengthening Canadian dollars.

Let's assume we bought that condo for $300,000 US ($315,000 Canadian) and made a down payment of $100,000 US ($105,000 Canadian). A 30 year fixed rate 8% mortgage of $200,000US would result in payments of $1,467/month US ($1,528 Canadian). Of course, if and when the Canadian dollar again reaches par with the US dollar, your payments will be reduced from $1,528 to $1,467 Canadian. Now, let's get a little aggressive and assume the Canadian dollar will reach $1.05US. At that exchange rate, your monthly mortgage payments would drop to $1,397 Canadian. It's not too far a stretch to predict an annual savings of $2,000 Canadian or more based solely on the exchange rate differential. Of course, if the Canadian dollar were to plummet for some unforeseeable reason, these mortgages can be paid off after 2-5 years (depending upon the loan) with no pre-payment penalty.

Finally, let's evaluate the cost of living in Mexico. For starters, let's assume that a year ago we were considering a lifestyle in Vallarta based on a budget of $10,000 pesos per month. With the annual inflation rate in Mexico of 5%, the same goods and services in Mexico will be $10,500 pesos this year. A little more than a year ago, when the Canadian dollar would purchase 9.5 pesos, $10,000 pesos was equivalent to $1,052 Canadian. Today, with the favorable exchange rate of 12.7 pesos per Canadian dollar, the $10,500 peso budget will cost a mere $827 Canadian, i.e., a savings of $225/mo or a 22% reduction in the cost of living in just one year!

In summarizing, it's obvious that the time has never been better for Canadians to explore the opportunities that exist in Mexico today. International monetary circumstances are ideal for Canadians concurrently with the condo supply and demand equation in Mexico heavily tilted in favor of the buyer. In terms of Canadian dollars, you can expect to find incredible condos at 30-35% lower prices than just a year ago and your cost of living will be 20-25% less than it was a year ago.

Of the nearly 50,000 expats living in Vallarta, we estimate that close to 30% of them are Canadians. Needless to say, the winter weather in Puerto Vallarta is more conducive to most outdoor activities (excluding snow boarding and ice hockey!) than anywhere in Canada. So, why hesitate? Come on down this winter and have some fun in the sun with your fellow countrymen and while doing so, save a significant portion of your nest egg on your retirement residence in Paradise. It's now certainly well within your financial reach and as they say, "if you snooze, you lose"; you'll never find a better time or place to invest those Loonies than now in Mexico! 

Jim Scherrer has owned property in Puerto Vallarta, Mexico for 26 years and resided there for the past twelve years. The mission of his series of nearly 70 articles pertaining to retirement in Puerto Vallarta is to reveal the recent changes that have occurred in Vallarta while dispelling the misconceptions about living conditions in Mexico. For the full series of articles regarding travel to and retirement in Vallarta as well as pertinent Puerto Vallarta links, please visit us at PVREBA.

New Condos in Puerto Vallarta

By Jim Scherrer

Let’s start out by assuming that you’re a pretty savvy investor; your 401k, IRA, or personal investments have kept up with the S&P 500 average during the past ten years and you’ve lost only about 35% of your life’s savings! Did you realize that the Mexican Exchange Traded Fund (EWW) which represents the Mexican stock market, even though it was annihilated during the current recession along with all other markets throughout the world (but is recovering rapidly), has advanced by 200% during the same time frame? In other words, $100 invested in the S&P 500 in 1999 would now be worth $65, whereas if it were invested in the Mexican EWW fund it would now be worth $200. Please refer to the ten year graph below in order to see the comparisons between these two areas of investment and perhaps you can speculate as to where might be the best market to place your next bet!

                                                                                                                                                                                                                                                                        One of the most significant reasons for this steady and rapid growth in the Mexican stock market (Bolsa) must be attributed to the policies of the new governing party that has been in control since 2000. Mexico has been governed by a couple of pro-foreign investment Harvard alumni during most of the timeframe shown above and will continue under the same leadership for at least another three years. The PAN party, led first by President Fox and currently by President Calderon, has brought Mexico from a Third World Country to a Newly Industrialized Country standing in a matter of seven short years. Among their numerous accomplishments, they have cracked down on corruption, have promoted free market capitalism while maintaining a relatively firm peso/dollar relationship, and have elevated tourism to the top of their list of strategic objectives.

We have lived in Puerto Vallarta during the entire ten year period and have witnessed the changes and growth firsthand. As the economy has boomed, unemployment in Vallarta has been virtually eradicated while the population has doubled, prices for materials, labor, and land have tripled, and of course, real estate prices have also tripled.

Now, let’s compare this growth and real estate value appreciation in PV to what has been experienced in the US. The latest government released graph below from the Federal Housing Finance Agency (FHFA) shows that average housing prices in the US appreciated by nearly 70% from 1999 through 2006. Since then, the rate of appreciation has dropped precipitously until the fourth quarter of 2007 when values actually started depreciating.  Throughout all of 2008 and the first quarter of 2009, prices have plummeted by about 10% and as you can see in the graph below, we can project prices to fall by another 5-10% before they once again start appreciating. In other words, the average investment in housing in the US made 10 years ago will have increased in value by 40-50% by the end of 2009. Even though housing values have recently been crushed, real estate has still way outperformed the stock market during the past ten years; hopefully, your real estate gains have more than offset your stock market losses!

With the US real estate market currently experiencing a serious recession, no real appreciation in housing values is expected for at least two more years. In summarizing, most Americans have enjoyed roughly a 40-50% gain in their property value over the past ten years and can expect the equity in their residence to be, at best, essentially dead money for the next couple of years.

When we compare the above data to what we’ve experienced in Vallarta, where real estate values have tripled during the past decade, we can only thank our lucky stars for letting us be among the first to participate in the ongoing land rush in Paradise! Fortunately for the about-to-retire baby boomers, it’s not too late.

Due to the extreme demand in second homes and retirement properties in resort destinations, Vallarta has witnessed an explosive ten year period of growth. So much so, that with the current global recession, the developers of the large condominium projects requiring long term planning, financing, and construction have been caught totally off guard. Once they committed, most of them (the reputable and fully capitalized ones!) felt it necessary to complete their projects regardless of sales. Consequently, with the recession driven reduction in demand and a supply of more than 7,000 units, prices for new condos are at a bargain basement level with some of the developers selling their surplus inventory at not much above their cost. This is truly a buyer’s market in PV for new condos however this supply/demand imbalance has had minimal effect on the value of existing condos.

The situation regarding the resale of existing homes and condos south of the border is entirely different than in the US. In Mexico, there are seldom any promotions or transfers requiring a housing upgrade or relocation, i.e., business related issues almost never require the sale of a resort property. Also, very seldom do owners decide to upgrade or downsize once they own a retirement property. More importantly, almost all real estate purchases in Mexico have been done on an all cash basis and therefore, regardless of the economy, there are no foreclosures on these fully owned properties. Mortgages became readily available in Mexico about five years ago however they require at least 20% down and substantial documentation proving one’s ability to pay. (Sorta like the good ol’ days in the US!) With this kind of financially solid buyer and this level of equity, there are virtually no foreclosures in Mexico. Although the rate of sales of existing properties has slowed to a snail’s pace, in the absence of foreclosures, prices of resale properties have held up fairly well; certainly not plummeting as in the US.

In summarizing, those of us that have been fortunate enough to be invested in Mexico during the past decade have fared very well. Even though we’ve felt the impact of the financial downturn during the past couple of years, our Mexican stocks and Mexican properties have more than doubled in value while those in the US have lagged well behind.

As we look to the future, we see very promising growth in the Mexican Bolsa as well as in Mexican real estate sales. In fact, FONATUR, the Mexican Tourism Board is still forecasting explosive growth in the Nayarit Riviera area, just north of Puerto Vallarta, during the next decade; only time will tell. As they say, “past performance is no guarantee of future results”! Assuming the global economy eventually rebounds, it is a given that the millions of baby boomers, just starting to retire, will be heading south for the benefits that Mexico has to offer. When this stampede of boomers hit the beaches in Vallarta, real estate prices that have been essentially flat for a couple of years, will continue escalating.

Aside from the fact that we have seven months of perfect winter weather in PV from November through May, when the average temperature is 73*F with virtually no rain and blue skies, we have eight magnificent golf courses, hundreds of tennis courts, world class deep sea fishing, hundreds of fine restaurants, clean food and water, and 50,000 other gringos to play and party with, our portfolios of stock and real estate investments south of the border are “en fuego”!

If you’re recently retired or considering retirement in the near future and you’re the savvy investor that you think you are, you really ought to check out the investments that lie south of the border; enjoy your retirement to its ultimate, and put your dead money to work for you in beautiful Puerto Vallarta.

Jim Scherrer has owned property in Puerto Vallarta, Mexico for 26 years and resided there for the past twelve years. The mission of his series of more than 60 articles pertaining to retirement in Puerto Vallarta is to reveal the recent changes that have occurred in Vallarta while dispelling the misconceptions about living conditions in Mexico. For the full series of articles regarding travel to and retirement in Vallarta as well as pertinent Puerto Vallarta links, please visit us at PVREBA.