For those of you who have been looking to buy property, whether it is to invest or to find a second home; multiple indicatives in the market show that, for the first time since 2014, new opportunities are available.
What Will Push the Market Upward
1.- Commodity prices spike upward – A big factor that will drive prices up is that commodity prices have risen exponentially since the beginning of the year. All commodities, including steel, cement, and lumber (things homes are built out of) are priced at the wholesale level internationally in USD. Although these prices have come down since the peak in April, from January through May, lumber has gone up 100%, steel 92%, and cement 42%. Because sales have been slow in SMA, the homes currently on inventory will not reflect these price changes yet, but new homes being built will. In the long run, this will push prices upwards. (It’s probably worth noting that commodities only make up between 20% and 40% of the direct costs to build a home.) So even if commodity prices double, it doesn’t mean that home prices will double.
2.- More US and Mexican states are opening up, Covid numbers are dropping, more are being vaccinated – Mexico’s covid map shows almost all of Mexico’s states completely green with a couple of exceptions and many US states, particularly in the South, are 100% open. As more states open, covid numbers continue to fall, and the vaccines become more available, it will reduce reluctance to travel, government restrictions, and will help restore mobility, which the lack of hurt San Miguel in the past year.
3.- Smart money moving to hard assets – As confidence in currencies falls and fears of inflation grows, governments, banks, money managers, equity funds, corporations and wealthy individuals have been taking action to preserve their wealth by moving into hard assets. Real estate is at the top of the list and is seen as a hedge against inflation.
MARKET ACTIVITY MARCH, APRIL, MAY 2021
- 72 – Actual Closings (Avg 24 per month)
- $398,117 – Average Sales Price
- 7.5% – Below Asking
- 293 – Avg Days On Market (9.8 months)
- 5 – Over $1,000,000
- 18 – Under $150,000 (often indicates lots or fixer-uppers)
- 29% – Mexican buyers
- 90 – Reported Under Contract (Avg 30 per month)
- 40 – Taken Off The Market
- 88 – Price Reductions
- 7.5% – Avg Price Reduction
- 178 – New Listings (59 per month, Avg Listing Price $519,140)
- $499,000 – Median Price of All Properties
- $497,750 – Median Price of New Properties Listed
- $417,000 – Median Sold Price
- 738 – Total Resale Properties Listed End of May
- 31 – Months of Inventory (Based on actual closings to number of properties listed)
Observations
- The volume of sales has picked up to a nice level considering the travel restrictions that had been in place during this period.
- Inventory is still growing.
- Many agents in our office are working with several clients who are coming in the next few weeks, so I think we will see another uptick in sales.
- The sales volume, if it remains the same, would put us with around 43% more sales in 2021 than in 2020.
- I have noticed a substantial increase in the number of lots or fixer-uppers sold in 2021.
What This Means to Buyers
If this trend of higher commodity prices continues, it will end up raising real estate prices in San Miguel. The advantage that buyers have today is that compared to other cities which are starting to see real estate booms, San Miguel is lagging. This provides a window of opportunity to purchase while home inventories are still high, prices are stable, but before we see price appreciation. How long will it take for San Miguel to catch up? Much depends on two factors that play off of each other. Since SMA is a tourist and second home destination, the confidence to travel again in large numbers will play a big role. The other determining factor will be the home inventory levels. As long as there is more than a year’s worth of inventory, prices will be held in check. Even though the sales data doesn’t reflect anything that looks like a boom yet, I have witnessed rapid changes in the San Miguel de Allende real estate market in previous cycles. After all, San Miguel is still a very desirable and multiple award-winning world-class city!
For Mexican buyers specifically, the fact that the peso has remained strong against the dollar means that your pesos still have purchasing power. However, since all homes are built using cement, steel, and lumber (all priced in USD at the wholesale level), the window for a good buying opportunity probably has a shorter time frame for those with pesos than for those with dollars. If these commodity prices continue to stay high, it will force builders to raise their prices sooner rather than later. As many Mexicans know well, in every significant world shift or crisis, investors flock to the USD and the pesos can lose substantial value against the dollar in a matter of days. With all of the instability in the financial markets, a similar devaluation of the pesos is easy to imagine. Following the smart money sooner rather than later and moving your cash to hard assets may help you avoid a decrease in the purchasing power of your pesos.
If you’re interested in investing in San Miguel de Allende and don’t know where to start, we invite you to read this article or contact our team of brokers so they can assist you.
