Prudential Vallarta Blog

Will Vallarta Follow US Real Estate Pattern?

If Puerto Vallarta real estate sales follow a path that parallels the U.S. housing industry, Vallarta may see a rise in the sale of existing homes as early as next year.  

However, construction and sales for new homes in Vallarta may continue to decline in 2009 – if  the Banderas Bay region follows the U.S. pattern projected by the National Association of Realtors (NAR).

Existing U.S. Home Sales to Rise

On November 7, NAR projected an increase in existing home sales in the U.S. from 5.02 million in 2008 to 5.32 million next year and 5.62 million in 2010.  The projections were based on the Pending Home Sales Index, which measures existing home sales contracts signed but not yet closed.  

The NAR projection was based on September data, which showed a 4.6% decline from August.  But Lawrence Yun, NAR chief economist, says the good news is that pending sales have been above year-ago levels for two months in a row. 

“The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we’re still in a broad period of stabilization,” he said.  The Pending Home Sales Index was 1.6% higher for September than for the same month last year.

New U.S. Home Sales Decline

However, new home sales in the U.S. will decline again this year in contrast to rising projections for existing home sales.  In the U.S., new home sales will total around 487,000 this year and then drop to 413,000 in 2009 before rising to 520,000 in 2010. 

Banderas Bay New Home Sales 

The decline in new home purchases in the U.S. seems to define the pattern for the Vallarta market, at least for the first half of this year.   A study by Grupo Real del Mar Group and the Vallarta Lifestyles Publishing Group confirmed a broad decline in new home sales in Vallarta during the first six months of this year.  Out of the 82 development projects surveyed, only five had very strong sales results which actually accounted for 40% of all reported sales from all projects in the survey.

On average, the remaining 77 developments reported sales that were only about 50% of the total sales for the same period last year, according to the study.  By July 1, six developments on the Bay had either cancelled their projects or put their plans on hold indefinitely.  

Inventory growth on the Bay has declined dramatically compared to 2007 when total units increased by an extraordinary 125%.  By contrast, in the first six months of this year, inventories grew by only 5%.

NAR’s economist Yun stated that in the U.S., “Housing construction won’t improve before existing-home sales recover and inventory conditions become more balanced.”  Based on parallels with NAR data (and on common sense), new construction starts on the Bay will be very limited next year, at least until there are strong signals that existing home inventories have begun to decline in our region.