PDC Market Predictions for 2012

by Enrique (Henry) Saldana  (January 2012)

We all know the "Beauty is in the eye of the beholder" saying, and I believe it does in fact apply to making market predictions for real estate.

In terms of real estate, the most important factors to consider while making market predictions, in my view, would be: past sales, new construction, supply vs. demand, consumer confidence, and financing availability.

In terms of the local market, and even at national level, there is little or almost no consolidated information as to these types of data in Mexico.

So we will try to give you some brief information with regards to Mexico's national housing market, the USA and Canada market predictions from some experts, and let you decide how you foresee the local Real Estate Market for 2012.

We are using USA and Canadian market trends for those are some of the primary home purchasers, outside of the national market, in our area.

With regards to the USA Home Property Market:

Homebuilders are feeling better than they have in several years heading into 2012; their sentiment numbers are rising. Single family permits and starts are also both on the rise. Housing permit numbers point to higher single family and multifamily housing starts over the next two to three months.

We're seeing a lot of new construction in multifamily and in apartments, and that is set to be delivered not this coming year, but perhaps in 2013 or 2014.

However, here is the Money Morning Staff report:

U.S. Economy 2012 Forecast: Where to Find the Biggest Gainers and Avoid the Biggest Losers in This Year's Rocky Markets

Anyone who hoped the U.S. economy would get back on track in 2011 was sorely disappointed. 

The European sovereign debt crisis and the abysmal failure of policymakers to take effective action undermined any chance we had at a strong recovery. 

And what's even worse is that we're in for more of the same in 2012. Indeed, the U.S. economy in 2012 will be even more sluggish than originally thought—and for the same reasons 2011 was a disappointment.

The Organization for Economic Cooperation and Development (OECD) estimates U.S. growth will slow to 2% next year, down from a 3.1% estimate in May. It forecasts growth will pick up to 2.5% in 2013.

Of course, these forecasts are contingent upon Congress finding a way to stimulate the economy and tighten fiscal policy—not an easy balance to achieve. Without such action, U.S. economic growth next year could be as slim as 0.3%, and only hit 1.3% in 2013.

"Uncertainty remains the watchword for the U.S. economy," said Money Morning Global Investing Strategist Martin Hutchinson. "The risks are still pretty high because no one's sure what the Europe outcome will be."

On the other hand, The Economist says the following with regards to the Canadian RE market: According to experts, the housing bubble has been bursting since 2008. Before that, we had never seen house prices rise so fast, in so many countries, for so long. Since then, home prices in the U.S. have fallen by 34% from 2006. Things are even worse in Ireland where prices dropped by 45%. In Spain and Denmark, prices have fallen by 15%. Similarly, they’ve dropped 10% in Britain and Italy. In countries like Canada, Australia and Sweden, prices have fluctuated, before rising to reach new highs. The result? An overvalued housing market. In fact, Canada is one of the nine countries where "home prices are overvalued by about 25 per cent or more." So what can we expect for 2012? Don’t fret; according to The Globe and Mail, we have nothing to worry about. Economists predict that if interest rates stay low and subprime mortgages are kept at bay, prices won’t crash, and the market will probably just plateau.

Benjamin Taj, chief economist of CIBC, makes his real estate predictions for the year. They include the following:

  1. Since interest rates will remain low, prices will remain high, especially in the city centres of Vancouver and Toronto.
  2. Rates are not expected to stay low forever, though. For this reason, Taj suggests accounting for higher payments of at least 2–3 percentage points. If that brings your monthly mortgage to an uncomfortably high payment, consider a smaller mortgage or a less expensive home.
  3. While prices are higher than they’ve ever been, bidding wars won’t be an issue. Homebuyers will have ample time to search out that perfect home without worrying about competing with too many other offers.
  4. In 2012, Taj predicts that there won’t be money in flipping houses.
  5. He also predicts that prices might actually go down in some parts of the country.
  6. If interest rates remain level, the cost of renovating won’t increase too much. Taj suggests that you take advantage of low rates and finance your projects as needed.
  7. Some homeowners will be tempted to take advantage of low interest rates and take on a second mortgage. If you fall into this category, Taj recommends that you make sure you’re prepared to finance that second home if and when rates do increase.
  8. If you’re able to cope with fluctuations in the market, Taj says that variable-rate mortgages are still a good option.

And, last but not least, here is what some experts on the Mexican Housing Market have to say with regards to the National Real Estate Market:

Urbi augura que ventas crecerían hasta 13% en 2012: by Real Estrategy Sector Vivienda Dic 8, 2011.

Urbi Urban Developers informed that for 2012 they expect an increment in revenue between a 10–13%, with relation to total sales for that year.

"For 2012, the company expects an income growth of 10–13%, based on an increased number of new housing projects and those already in process," informed Urbi in their latest press release.

The developer, based on the number of total sold homes throughout Mexico is right now in third place, told investors that they expect to generate an NOI (Net Operating Income) of approximately 13.0 to 13.5 pesos MN per each 100 pesos of revenue.

Moments before the closing of the Bolsa Mexicana de Valores (BMV), the Mexican equivalent to Wall Street, the value on the market of Urbi was of 16,190 millones de pesos, a number that surpasses the second major housing developer in the country, Homex, that registered a market cap of 10,870 millones de pesos, which also surpasses the 9,540 millones of Corporación Geo, the company with the highest number of sold properties in the country. Source: El Semanario

So based on the above information provided, what are your predictions for the local real estate market for 2012? And how realistic are they?

Enrique (Henry) Saldana
Mexico Realty Solutions
moneylendingbus@hotmail.com
Tel: (984) 147-2388; Cel: (984) 111-8743


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