Cabo Market Update - Pump The Brakes??

Cabo Real Estate market update for 2023.
The Cabo San Lucas real estate market in Mexico was experiencing significant growth and attracting both domestic and international buyers. Cabo San Lucas, located at the southern tip of the Baja California Peninsula, is a popular destination for tourists and those looking to invest in vacation homes, retirement properties, and real estate developments. Here are some key points about the Cabo real estate market:
Strong Demand: Cabo San Lucas and the surrounding areas like San Jose del Cabo have been experiencing an increase in demand for real estate. The region's natural beauty, pleasant climate, and lifestyle offerings make it an attractive destination for retirees and vacationers.
Diverse Property Types: The market offers a wide range of property types, including beachfront condos, luxury villas, golf course homes, and more. Investors can find options that suit various budgets and preferences.
International Buyers: The market in Cabo has traditionally attracted a substantial number of international buyers, particularly from the United States and Canada. These buyers are drawn to the region's proximity, accessibility, and amenities.
Tourism and Investment: The growth of tourism in Cabo has led to increased real estate investment. Many people see real estate in the area as a solid investment, whether for rental income, vacation homes, or long-term retirement plans.
Infrastructure Development: Infrastructure improvements, such as new roads, airports, and utilities, have contributed to the area's appeal and spurred real estate development.
Regulations and Legal Aspects: It's important for potential buyers to understand Mexican property laws and regulations. It's advisable to work with experienced real estate agents and lawyers who are knowledgeable about the local market.
Market Fluctuations: Like any real estate market, the Cabo real estate market can experience fluctuations. Economic, political, and global factors can influence property prices.
Fletcher Wheaton at cabokey.com

[@ab25db]

Would you say that a lot of those cash deals in Mx are financed with US cash out refinances and therefore exposed to US interest rates ?

[@fletcherwheaton]

Maybe 25% of the cash buying market would be affected IMO by that. HELOC purchases usually have variable rates but I doubt many US buyers are considering that option to buy here now with rates close to 8%.

[@markmoore273]

I think so

[@Anonymint-vj7bt]

@@fletcherwheaton it might not be limited just the direct effect of rising interest rates in the countries where real estate is primarily financed? EDIT: I pulled up Mexico's history housing index data and it did experience the post-2008 housing decline, but it was delayed and subdued as a mostly flat pricing over ~4 years on average. But by now Mexico’s economy is probably much more hinged to a downturn in the USA, given that remittances, exports, auto exports and tourism revenues have more than doubled since then. Since Mexican real estate is largely not mortgaged, there will not be a contagion of NPL liquidations, yet there could be a drawn out stagnation of the market with up to say ~2 - 5% per quarter declines as inflation-adjusted. The repeating 18.6 year real estate ends in late 2025ish, at least in the Western countries. The pandemic tourism and escape-to-Mexico boom is probably off its peak demand by now? World war is looming which will crater the global economy because for example (e.g. cross-Pacific) supply lines will be disrupted. Also inflation is ticking back up, interest rates are likely to be higher again by 2025. Also as you (or should) allude, the supply of cash buyers is not unlimited. Cash will be king in 2026 and there will be fire sales. I think you are missing a very important factor in your analysis. The cash buyers exist because of massive liquidity and the absence of capital controls in the West. The US Gov is running $trillions deficits. But financial repression is looming. What happens when to control inflation capital controls are erected which disrupt the flow of cash out of the West including the $16B in monthly remitances to Mexico? What do you think? Also with the strong peso that eventually has to reverse (maybe in 2026 as the dollar will become very strong during WWIII) the smart local money would be cashing out to dollars at the peak. My thought it there will be dip this summer with peso appreciating back to 17 or 18. Then real estate will run up again into 2025, then wham-o the bottom will fall out suddenly as was the case in 2008. The catalysts will be different than 2008 though. Perpetual motion machines do not exist. Ask yourself is the demand for Cabo driven by factors that will be unaffected by every possible eventuality? I doubt it. Everything runs in cycles. Or maybe I am wrong and as everything worsens in the West, the exodus to Mexico will accelerate?

[@kenabest]

Fletcher, LOVE THIS video. YOU have been key in our understanding of the Cabo market! You did not push, you ask a lot of discovery questions and present potential opportunities with NO pressure to buy a certain project. If anyone is thinking about buying in the greater Cabo area, I can say, Fletcher has been great to work with. We are getting excited to have our condo at @cabocosta finished sometime in 24Q1, all with Fletcher and his team/connections help us with our first ‘asset’ to use as a short term rental and place to stay when we can enjoy the people and community of Cabo.

[@fletcherwheaton]

Thanks Ken, appreciate you! See you down here soon!

[@SeanTheNoob]

Great vid!

[@fletcherwheaton]

Thanks Sean, hope San Jose is treating you well.

[@joeh1970]

Good stuff! Thanks Fletcher.

[@fletcherwheaton]

thanks for watching Joe!

[@joeh1970]

@@fletcherwheaton I watched the video again. Listening intently this time around. (Lunch break earlier) The one word that kept coming back was greed. Greed from developers. Greed from brokers. Greed from investors. With all the development in the market, is Cabo prepared with the infrastructure to withstand the growth? Really interesting stuff...

[@fletcherwheaton]

Agreed, there are a ton of solid projects that I would be comfortable buying into or leading clients to, just think it's time to make sure everyone understands the market.

[@ethanmurray2203]

I'll bet a lot of Americans use their HELOC to buy in Cabo. A lot of helocs have been closed, or the floating rates are high. This would effect sales there?

[@fletcherwheaton]

I don't think HELOCs are that big of a means to purchase down here. While I usually never fully know a clients complete financial situation, only 1 that I know of used a HELOC. The variable rate hurt as interest rates moved up. This option is certainly not as appealing as it was in 2020 or 2021 for sure.

[@Anonymint-vj7bt]

EDIT: I pulled up Mexico's history housing index data and it did experience the post-2008 housing decline, but it was delayed and subdued as a mostly flat pricing over ~4 years on average. But by now Mexico’s economy is probably much more hinged to a downturn in the USA, given that remittances, exports, auto exports and tourism revenues have more than doubled since then. Since Mexican real estate is largely not mortgaged, there will not be a contagion of NPL liquidations, yet there could be a drawn out stagnation of the market with up to say ~2 - 5% per quarter declines as inflation-adjusted. The repeating 18.6 year real estate ends in late 2025ish, at least in the Western countries. The pandemic tourism and escape-to-Mexico boom is probably off its peak demand by now? World war is looming which will crater the global economy because for example (e.g. cross-Pacific) supply lines will be disrupted. Also inflation is ticking back up, interest rates are likely to be higher again by 2025. Also as you (or should) allude, the supply of cash buyers is not unlimited. Cash will be king in 2026 and there will be fire sales. I think you are missing a very important factor in your analysis. The cash buyers exist because of massive liquidity and the absence of capital controls in the West. The US Gov is running $trillions deficits. But financial repression is looming. What happens when to control inflation capital controls are erected which disrupt the flow of cash out of the West including the $16B in monthly remitances to Mexico? What do you think? Also with the strong peso that eventually has to reverse (maybe in 2026 as the dollar will become very strong during WWIII) the smart local money would be cashing out to dollars at the peak. My thought it there will be dip this summer with peso appreciating back to 17 or 18. Then real estate will run up again into 2025, then wham-o the bottom will fall out suddenly as was the case in 2008. The catalysts will be different than 2008 though. Perpetual motion machines do not exist. Ask yourself is the demand for Cabo driven by factors that will be unaffected by every possible eventuality? I doubt it. Everything runs in cycles. Or maybe I am wrong and as everything worsens in the West, the exodus to Mexico will accelerate?

[@OldSchoolPrepper]

I'm not sure if you keep up with any of the Cabo FB groups...since I live in Los Cabos for 4 months a year (live in the US for 8 months) I do..what i'm seeing are a LOT of folks who have purchased pre-construction but the construction isn't being delivered...either not finished altogether/months behind or there are quite a few issues like with water leakage, cracks etc. So many folks complaining right now. If you get a chance you might want to go through the groups and just read what's going on with folks that are buying, it would be interesting from your angle, plus people are giving names of the builders/complex's. They aren't realestate sites, just regular Cabo site (like Cabo BS or Cabo: everything you want) and you'll see for yourself.

[@fletcherwheaton]

I know the sites, a lot of good info from particular members, tends to be a bit gossipy but you are right, can be a good source for information.

[@realdata8624]

What’s the name of the group?

[@BKCabo]

Boom 🎉🎉🎉🎉🎉

[@annpham4353]

Of course buy with me

[@jerrycrawford7688]

Come on Fletcher! Americans and Canadians CAN get mortgages in Mexico through Intercam and Global Mortgage (MoXi).

[@fletcherwheaton]

Yea, I talked about it in the video and even spoke about the origination fees and interest rates these companies provide.

[@andrewcoon192]

No chance that 40% of the buyers in United States are cash. I’m an agent in the states no way.

[@fletcherwheaton]

www.bankrate.com/real-estate/rise-of-cash-home-buyers/ - for vacation markets, which are more affluent buyers, this goes even close to 50/50 IMO. In smaller town markets with primary homeowners, I do agree this could be higher than 60/40. But with higher interest rates today, more cash buyers is common. Either way, you are proving my point that there are more cash buyers and less financing options here in Cabo than the US.

[@daidavies6210]

Cabo has prised itself out of the Market … Too expensive just 20 miles outside Cabo you can buy Land 30,000 sq mts for $217,000 bucks, Build your own 10,000 sq foot Villa with pool just 300 mts from the beach and double Garage and Guesthouse built it within 13 months , Cost me $672,812 bucks. Also have room for Two more Villa builds in the future due to the amount of Land I originally bought. Had the Villa valued for the Market , They came back with a Price of $4.7 Million. Guys Buy Land and build your own its cheaper.. And Planning is easy enough to get these days .

[@realdata8624]

Any specific areas you recommend?

[@Anonymint-vj7bt]

@@realdata8624 problem is without strictly enforced zoning in much of Mexico, how can you predict what you end up with as a neighborhood if building in a rural area? Take a drive around in the areas where mostly local Mexicans live and see the sort of quality of life of those neighborhoods. For one, no restrictions on noise pollution, neighbor can run a junk yard, feral dogs all over... Also what did you do for water? Water wells are politicized and impossible to get a permit.