Impact of US Real Estate Market on Foreign Markets

At the end of 2007 the market for apartments, homes and condominiums en Baja took a huge fall. This was experienced by many people equally in the construction business as well as people who wanted to sell their homes to realize the increase in value in the last four years.
In this moment, all the buyers from the United States have disappeared. And “Why?” is the question.
It was the result of complex fiscal problems in the housing market and the system that caused the dramatic rise in prices is the cause of the fall in this moment. Without studying the problems, the Mexican market will not be able to recuperate.
First, it is important to understand the causes of the dramatic rise in prices in the USA. In the 1990’s many of the government regulations in the business of mortgages and banks were removed. Without much government oversight and at the same time the lowering of the interest rates by the Treasury Department, the classic models of the last fifty years changed.
For many years, a mortgage was a function of the liquid money of a family after the cost of maintaining normal life. It was estimate that a quarter of the family income went to pay a mortgage, taxes, insurance, and utilities. This formula maintained home prices at a sensible base.
But, without regulation, the models changed. The banks had money available at a price no seen in over fifty years and avarice grabbed the banks, agents, and mortgage companies.
At the same time, the real estate developers saw the opportunity for more money and the prices escalated without regard to reality. If new construction increased, existing home prices increased as well.
In this crazy market, people saw the value of their homes increase annually by thirty, forty and even fifty percent in some parts of the USA. Houses had gained value many times the original cost – like money in the bank, people thought. The agents of mortgage companies called constantly with offers of money and very interesting mortgages with introductory rates and payments less than the original mortgages.
People were able to change their mortgages and realize hundreds of thousands of dollars. And, with this were able to buy condominiums and homes in Mexico, because the prices seemed to be a good deal. This caused those prices to increase as well, without relation to the cost of construction.
But now, the market crashed in the USA with the bankruptcies of the financial sector, Wall Street, the banks and the mortgage companies. With this crash the value of homes in the USA lost two trillion dollars only in the year 2008! Gone are the buyers who are able to buy an overpriced Mexican condominium covered by the equity in their equally overpriced home. They don’t exist.
The rules have changed. No one can have a mortgage without proving income sufficient to cover the cost. The banks are very cautious and don’t want to give mortgages without much proof. Gone are the free-wheeling buyers. The last depression of this magnitude was in 1929 and it took more than 25 years to recover.
It is time for the developers and sellers of real estate who seek North American buyers to take a hard look at their options. Forget Gringos with lots of dollars in their hands, with rare exceptions they no longer exist and I think that for many years they will be an endangered species.To sell to Gringos, many of the prices have to come down more than forty percent or to the level of 2000 with a small increase for inflation for materials and labor. At the end of 2007 the market for apartments, homes and condominiums en Baja took a huge fall. This was experienced by many people equally in the construction business as well as people who wanted to sell their homes to realize the increase in value in the last four years.
In this moment, all the buyers from the United States have disappeared. And “Why?” is the question.
It was the result of complex fiscal problems in the housing market and the system that caused the dramatic rise in prices is the cause of the fall in this moment. Without studying the problems, the Mexican market will not be able to recuperate.
First, it is important to understand the causes of the dramatic rise in prices in the USA. In the 1990’s many of the government regulations in the business of mortgages and banks were removed. Without much government oversight and at the same time the lowering of the interest rates by the Treasury Department, the classic models of the last fifty years changed.
For many years, a mortgage was a function of the liquid money of a family after the cost of maintaining normal life. It was estimate that a quarter of the family income went to pay a mortgage, taxes, insurance, and utilities. This formula maintained home prices at a sensible base.
But, without regulation, the models changed. The banks had money available at a price no seen in over fifty years and avarice grabbed the banks, agents, and mortgage companies.
At the same time, the real estate developers saw the opportunity for more money and the prices escalated without regard to reality. If new construction increased, existing home prices increased as well.
In this crazy market, people saw the value of their homes increase annually by thirty, forty and even fifty percent in some parts of the USA. Houses had gained value many times the original cost – like money in the bank, people thought. The agents of mortgage companies called constantly with offers of money and very interesting mortgages with introductory rates and payments less than the original mortgages.
People were able to change their mortgages and realize hundreds of thousands of dollars. And, with this were able to buy condominiums and homes in Mexico, because the prices seemed to be a good deal. This caused those prices to increase as well, without relation to the cost of construction.
But now, the market crashed in the USA with the bankruptcies of the financial sector, Wall Street, the banks and the mortgage companies. With this crash the value of homes in the USA lost two trillion dollars only in the year 2008! Gone are the buyers who are able to buy an overpriced Mexican condominium covered by the equity in their equally overpriced home. They don’t exist.
The rules have changed. No one can have a mortgage without proving income sufficient to cover the cost. The banks are very cautious and don’t want to give mortgages without much proof. Gone are the free-wheeling buyers. The last depression of this magnitude was in 1929 and it took more than 25 years to recover.
It is time for the developers and sellers of real estate who seek North American buyers to take a hard look at their options. Forget Gringos with lots of dollars in their hands, with rare exceptions they no longer exist and I think that for many years they will be an endangered species.To sell to Gringos, many of the prices have to come down more than forty percent or to the level of 2000 with a small increase for inflation for materials and labor. I know that sounds shocking, but it might be better to have a small return than none at all for the next 20 years!