“You lose in the end unless you know how the wheel is fixed or can fix it yourself.”
Edna Ferber

As we wait for a normally slower summer/rainy season to end and prepare for the “high season,” we think more about the adjustment going on in the USA real estate market.

Will this correction redirect money and interest in our market as US home owners work themselves out of their problems? Will there be a back lash of increased interest is changing lifestyles and seeking of kinder climates with the potential for lower cost of living? Will we see a slow down in travelers and buyers?

I read once that during the Great Depression in the 1920’s in America, movie ticket sales went up as people needed escapism in their difficult lives. Granted, a movie ticket is not the same as the cost of a piece of real estate, but the need to escape can be accomplished on each economic level. For those people with money during the depression, there were trips and purchases to be enjoyed to “forget” the situation at home.

Spending habits change and are influenced by economic and psychological factors. After 9-11, many bookings of luxury rentals in Vallarta for the Thanksgiving and Christmas holidays were cancelled. Then, within 4-6 weeks, the properties were rebooked and homes were full for the holidays in Puerto Vallarta that year.

Were these the same people who had cancelled or new clients choosing to “get away”? I don’t know for sure, but the decision of many people to spend their holidays in a different environment or keep their lives on a regular routine gave some comfort against the shock and depression from events that fall day in September.

Soon after 2001, we saw a large increase in the number of cruise ships booking into our port. A large part of the public decided to travel by this method, in am convinced in part, because of the belief that a cruise ship might be safer than air travel or cruising didn’t remind one of the air tragedy as much. Wisely, I imagine, cruise ship owners increased their marketing and offered special prices for “Get Aways.” So our business got better, too.

Vallarta and the Bay of Banderas have continued to build business with cruise ships coming in offering many chances for onshore shopping, dining, and entertainment. The harbor has been expanded for more dockage, and if the fees are not cheap, they make more sense to the cruise owners when their floating cities have more passengers frequently traveling to Mexican ports of call.

Public tastes and habits changed again in the past few years. One such group is those with high incomes who can travel in their own private yacht or jet. Instead of buying million dollar plus homes as retreats in Mexico, they have begun to join clubs or associations offering accommodations in multiple luxury homes, in different locations with temperate weather and great beaches. For the cost of fees to join and yearly maintenance, these higher income earners, now can choose to travel to different destinations and not stay in one place. The cost of this type of membership can still be significant: up to several hundred thousand dollars to join and thousands of dollars a year for maintenance. These customers are willing to wait their turn to use the homes and often cannot go without some advance plan.

Instead of owning a luxury home outright, these customers purchase a membership for more than the cost to maintain a luxury property, but less than the purchase price of such a home. Having more freedom, more choices, while still maintaining a luxury life style, appeals to enough of the wealthy class to have created a significant market of corporate owned homes. This change came about quietly and was not noticeable until it had some critical mass. The clubs or corporations have to continue to change out their product to keep their client base interested and not bored with the same locations to stay in year after year. This also tells us something about the current desire for change and adventure instead of “safety” in a permanent second/vacation home.

Marketing geniuses know how to position themselves to be in the right position to take advantage of a market shift. Who knows what some of these changes will be for all of us in the coming 12 months.

I, for one do not think it is a buyer’s market in the Bay at the moment. Things can change, and we will all be waiting to see how the year works itself out. Up until this point, we have had higher average appreciation in the entire Bay for the past two years than in previous years. To be down any percent in 2007 from 2006 doesn’t mean that both years are not higher than average appreciation per year for the prior 10. Numbers can be used to confuse and mislead and we need to remember that. Perception can become reality and the “real truth” gets left out in the cold.

So Mr. Baker may have built a better automobile in the early development of the car in American history (Movie fans will remember “The Fabulous Baker Boys”). For various reasons, Mr. Baker failed to become a financially successful car manufacturer.

Historically supply and demand creates two scenarios to play out: more supply, less demand and prices adjust down; less supply, more demand and prices adjust upwards. Equilibrium is a balance of supply and demand, and happens less frequently than the opposite ends of the pendulum swinging to the extreme. The good thing is when there is an extreme at one end or the other; circumstances bring into effect a change so the pendulum swings back. We normally have too much or too little, but in between there is some balance for a period of time.

The unfortunate times are when a country cannot make corrections. Then there is serious economic and psychological depression in the country. A balanced future may not happen without dire changes, permanent loss, or takeovers. We know we are really in trouble if the natural tendency to adjust to imbalance in demand and supply does not work in normal predictable patterns.

There are adjustments in real estate markets going on in Spain, and the new president of France is trying to implement policies to revive the French economy as prices of in town properties continue to climb. Currently, London, England is described as the most high priced real estate market in the world with sale prices of £ 2,300 a meter in select areas. Many of these current buyers are not English citizens. These purchasers, who have the ability to be anywhere, are buying in London.

Venice has seen an increase in their hotel room prices as well as increased prices of real estate. Many of the 13 million visitors a year visit the water city during the day for about 8 hours to shop, sightsee and eat. They return to less expensive lodging, including cruise ships, in the evenings.

An interview with a finance guru in a recent copy of” The Wall Street Journal” quoted the financial workout specialist saying he knew the financial markets and mortgage refinancing speedups were in trouble in 1998. 1998! That’s 9 years ago, and if you count that we began to see articles about defaults in prime and sub prime mortgages 9 months ago, that is still a significant amount of time for continuing in a pattern which HAD to have a correction.

The same day I saw the guru quote, there was an article in the “International Herald Tribune” profiling a savvy fund manager who had seen the handwriting on the wall and had invested “short” or bet that the default rate would go up and interest rates could not stay low. This man and his family were on holiday in Paris, France enjoying some of their reward earned for seeing what others had not seen.

So, how will our market be in a few weeks or months or by the end of the year? We need to continue to work hard, pay attention and try not to jump to conclusions or get caught up in a “mob type” of mentality.

I tell my agents that one of two things will happen this fall: there will either be fewer buyers and a lot of supply with many agents competing for the same customer, or there will be lots of customers, lots of inventory, and lots of new agents setting up shop around the corner. Either way, we as real estate professionals, have to be smarter, quicker, focused and aware. For us, it is the competition of the market place that determines if we make a living. We get to see the market changes up close quickly because we are working on commission and dealing with the public.

For those who have to face the grim task of loosing a home because they are not able to pay the mortgage, there will hopefully exist market factors which offer the opportunity for works-outs on mortgages and new terms negotiated. There will be other buyers willing to take over the debt. Even if there is no equity for the seller, good credit may not be lost due to foreclosure.

I have seen a constant demand in international markets to be the continued desire of people to be where there good weather… lots of sun and temperate climates. Humans feel better in sunny temperate places, and that is a proven fact. This human need will remain, even as financing situations work to cope with current economic pressures to balance the pendulum swing of supply and demand.

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas and my travels outside our market. I recommend that each potential buyer or seller conduct his own due diligence and review.

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his own due diligence and review.