Mexico’s housing market strengthens, despite struggling economy

Mexico Residential Real Estate Market Analysis 2023

April 25, 2023

Mexico’s housing market remains resilient, buoyed by its fundamentally strong demand. The nationwide house price index soared by 10.41% during 2022, following y-o-y increases of 8.56% in 2021, 5.38% in 2020, 7.66% in 2019, and 9.35% in 2018, according to the Sociedad Hipotecaria Federal (SHF). Though when adjusted for inflation, house prices increased by a modest 2.19% y-o-y in 2022.

On a quarterly basis, nationwide house prices rose by 2.35% (0.57% inflation-adjusted) during the latest quarter.

During 2022:

  • New houses registered an average price growth of 11.45% (3.1% inflation-adjusted) from the previous year.
  • Existing houses had a price increase of 7.33% y-o-y (-0.7% inflation-adjusted).


By metropolitan area, Tijuana recorded the biggest y-o-y house price growth of 15.12% (6.55%) during 2022, followed by Guadalajara (11.4%), Querétaro (10.6%), Monterrey (10.4%), and León (9.15%). Strong house price increases were also seen in Valle de México (8.51%), Puebla-Tlaxcala (7.81%), and Toluca (6.43%).

Mexico’s housing market takeoff comes after it has suffered prosaic growth for a decade. From 2015 to 2022, house prices rose strongly by 70.8%. Though, in real terms, the cumulative house price growth is more modest, at 20.2%.















































Sources: Sociedad Hipotecaria Federal (SHF), Global Property Guide

The secret is Mexico’s enormously strong domestic market, particularly the rising middle class. Currently, the country’s middle class was estimated to account for almost half of the total households, at about 16 million. They are expected to continue growing, with about 3.8 million more households projected to move into the middle class by 2030. Moreover, most Mexicans who move generally prefer to buy rather than to rent. Around 82% of Mexicans want to buy a property, as opposed to 18% that prefer to rent, according to Lamudi.

Foreign demand is also robust. As economic activity returns to pre-pandemic levels, American and Canadian buyers are now coming back to Mexico, after a several-year slump, pushing home values up. More than 1 million Americans live in Mexico, and more than 500,000 own homes in the country, according to a Forbes article.

This is despite the fact that the value of the Mexican peso (MXN) has actually appreciated by about 21.6% against the US dollar in the past three years, reaching an average exchange rate of USD 1 = MXN 18.403 in March 2023.

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Since the Mexican housing market is not driven by speculators, it has been resilient despite the Covid-19 pandemic and economic uncertainties. House prices are expected to continue rising during the remainder of the year, according to local real estate experts.

Mexico’s economy grew by a modest 3.1% during 2022, following an expansion of 5% in 2021 and a contraction of 8.1% in 2020, according to the national statistics agency INEGI. The growth was mainly driven by the primary sector and despite an ongoing aggressive monetary tightening cycle.

Yet the economy is expected to expand by just 1.7% this year and by another 1.8% in 2024, according to the International Monetary Fund (IMF).

In March 2023, the central bank Banco de Mexico (Banxico) raised its key rate further by 25 basis points to 11.25%, its 15th consecutive rate hike and adding to the cumulative 725 basis points rate increase since the start of the bank’s tightening cycle in June 2021 to address persistent inflationary pressures. The recent decision lifted borrowing costs to their highest level on record.

Local house price variations

Mexico’s most expensive houses are in Mexico City, State of Mexico, Morelos, Nuevo León, Jalisco, Nayarit and Querétaro. In Mexico City, the most expensive housing market in the country, the average apartment price is about US$202,000 – around US$85,000 above the national average, according to Ramon Davila of real estate firm Inmobilux.

In Polanco and La Condesa, two of Mexico City’s most exclusive neighbourhoods, prices of luxury residential properties range from US$370 to US$1,000 per square foot (sq. ft), according to Mr. Davila. The average price of an apartment in these affluent neigbourhoods was at about US$600,000 last year while luxury villas are priced from US$2 million to US$4 million.

In Lomas de Chapultepec, another well-established upscale residential area in Mexico City, three-bedroom luxury homes are sold from US$1.5 million to US$2 million while four-bedroom properties are priced from US$2.5 million.

In Benito Juarez, Gustavo Mader, Coyoacan, and Alvaro Obregon, which are considered as middle class neighbourhoods, prices ranged from US$48,300 to US$133,000, according to Andrés Vizcaíno of KW Pedregal Keller Williams.

“Foreigners get attracted because they think Mexico City’s cheap market, which it actually is not,” Mr. Davila said.

In Santa Fe, one of Mexico City’s modern districts, properties can be bought at U$2,000 to US$ 4,000 per sq. m.

In Cuernavaca, capital of the state of Morelos, an hour and a half drive from Benito Juarez International Airport in Mexico City, luxury homes are available at prices above US$1.5 million. Low-end three-bedroom homes can be bought starting from US$200,000, while mid-range houses with three to four bedrooms are priced at US$500,000, according to Andrea Dolch Espinosa de los Monteros of Mexico Luxury Estates.

In Playa del Carmen, a coastal resort town along the Yucatán Peninsula’s Riviera Maya, a three-bedroom apartment is priced at US$ 460,000. In Playacar, a gated community of resort developments in Playa del Carmen, two- to three-bedroom luxury homes list between US$500,000 to US$1 million.

In Tulum, another resort town located in Mexico’s Caribbean coast, a three-bedroom townhouse in the exclusive gated community of Aldea Zamá can be bought for about US$395,000.

In Cancún, a city in southeastern Mexico known for its beaches, mega-resorts, and frenetic nightlife, the average price of houses was at around US$250,000 last year. Apartments in the area have prices ranging from US$100,000 to US$200,000.

Rental yields are moderately good

Gross rental yields in Mexico City - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - are moderately attractive. During 2022, the rental yields in Mexico City ranged from 4.11% to 9.26% with a city average rental return of 6.34%, according to a recent research conducted by the Global Property Guide. In general, smaller apartments earn a bigger return.

In Alvaro Obregon, which includes Jardines del Pedregal that hosts some of Mexico’s richest families, rental yields ranged from 6% for one-bedroom apartments to 4.11% for larger apartments.

In Benito Juarez, the richest alcaldia in Mexico and is primarily populated by the middle and upper middle classes, apartment rental yields range from 5.98% to 6.75%. The borough is home to a number of landmarks such as the World Trade Center, the Estadio Azul, the Plaza Mexico, and the Polyform Cultural Siqueiros.

In Miguel Hidalgo, just west of the historic centre, apartment rental yields range from 4.97% to 8%. This contains mostly working class areas in and around Tacuba and Tacubaya, but its southwest contains some of the most exclusive colonias. Most of the diplomatic missions in Mexico City are located in the area, mainly in the Lomas de Chapultepec and Polanco area, which are some of the highly-priced districts.

In other Mexican cities:

  • Mérida apartments have a rental yield of 4.11% to 8.48%, with a city average of 6.79%.
  • Monterrey apartments earn a rental yield between 5.76% to 6.46% with an average of 6.12%
  • Cancún apartments yield between 3.43% to 5.32% with an average of 4.24%.
  • Acapulco apartments can yield you between 1.16% to 3.20% with an average of 2.51%.
  • Puebla apartments yield stay between 3.00% to 7.93% with an average of 5.99%.
  • Guadalajara apartments earn a yield between 3.50% to 7.88% with an average of 6.12%.
  • Naucalpan de Juárez apartments have a yield between 4.10% to 7.06% with an average of 5.75%.

Round trip transaction costs range from low to high for foreigners buying residential property in Mexico.

Foreign buyers are attracted to the coast

International investors, particularly American and Canadian buyers, have been returning to Mexico in recent months, as economic activity normalizes after the Covid-19 pandemic. They are snapping up properties in coastal areas like Puerto Vallarta and popular retirement areas such as San Miguel de Allende.

In fact even during the pandemic Playa del Carmen, one of the largest cities on Mexico’s Riviera Maya coastline, has seen a sharp uptick in demand from homebuyers seeking refuge from pandemic-related lockdowns. “We have a lot of clients from New York, and a lot of people are looking for beachfront houses so they can enjoy life on the beach if there’s another lockdown, instead of being stuck in a condo in the city and hating their family, said Jason Waller, the owner of Playa Real Estate Group.

American buyers are very important as owners of beachfront properties in the country. More than 1 million Americans live in Mexico, and more than 500,000 own homes in the country, according to a Forbes article. In fact an earlier article published by Point2 Homes ranked Mexico first among 30 favourite US and Canadian destinations for second home searches. Some of the most sought after Mexican destinations on Google include Puerto Vallarta, Cancun, Playa del Carmen, Cabo San Lucas, and San Miguel de Allende.

Foreign buyers are also eyeing properties in Cuernavaca’s prime neighborhoods, such as Sumiya, Palmira, and Tabachines, according to Guadalajara Sotheby’s International Realty’s agent Laura de la Torre de Skipsey.

In Mexico City, foreign buyers (mostly from Brazil, Spain, and US) tend to invest in new construction or commercial properties, and are in the city for work.

Because interest rates are rising rapidly, most foreign buyers pay cash.

Foreign land ownership

The Foreign Investment Law of 1973 allowed foreigners to purchase real estate anywhere in Mexico except the restricted zone that consists of areas within 100 km (64 miles) of international borders or within 50 km (32 miles) from the coastline at high tide. In 1993, Mexico amended the constitution to allow foreigners to purchase real estate within the restricted zone by means of a fideicomiso.

Under the current system of fideicomiso, foreigners can only own real estate in the restricted zone indirectly, by setting up bank trusts. While the trustee is the legal owner of the real estate, the beneficiary retains all ownership rights and responsibilities and may sell, lease, mortgage, and pass the property on to heirs. The fideicomiso is authorized by the Mexican Government under the Ministry of Foreign Affairs.

Although this system is relatively safe, it rests on the credibility of Mexico’s banking system and property registry administration, which unfortunately discourages many foreigners.

The rising middle class

Currently, the country’s middle class was estimated to account for almost half of the total households. The middle class is expected to continue growing, with about 3.8 million more households to move up to the middle range by 2030.

The rise of the middle class in Mexico is due to several key reasons:

First, there is now trade openness. As a percentage of the economy, foreign trade (exports plus imports) account for nearly 60% of GDP, making Mexico one of the most open economies in the world. By way of comparison, the figure is 27% in Brazil, 48% in China and 30% in the United States.

This is primarily linked to Mexico’s involvement with the North American Free Trade Agreement (NAFTA), established in 1994 (now rebranded as the United States-Mexico-Canada Agreement or USMCA). This fosters competition and puts an upper limit on the price of goods in the local market. Since the NAFTA was signed, the income levels and living standards of Mexicans have been rising. Mexico’s GDP per capita increased to about US$10,900 in 2022, from just about US$3,900 in 1995, according to the IMF.

Second, inflation has halved: it was close to 10% in 2000, but between 2005 and 2020 the rate has hovered around 4%. The autonomy of the Bank of Mexico has played a key role. However, the massive gas price hikes drove Mexico’s inflation rate to a 16-year high at 6% in 2017. This pressured the central bank to bring inflation back to its +/-3% target. Currently, inflationary pressures are building up again, with the nationwide inflation rate at 6.86% in March 2023.

Third, there is the prudent management of public finances. Between 2000 and 2012, the fiscal deficit was below 1% of GDP and in 2019, the deficit fell again to 1.6% of GDP. After increasing again to 4.6% in 2020 due to pandemic-induced government spending, the deficit declined again to about 3.3% of GDP in 2022. Total public debt, domestic and foreign, stood at just 45.1% of GDP in 2019, and after increasing to a multi-decade high of 51.3% in 2020, public debt declined again to 46.8% of GDP in 2022.

Fourth, financial inclusion. The population using banking services rose from 33 million in 2006 to 51 million in 2012. Despite huge improvements, Mexico still lagged behind other markets in the region in terms of people being banked. In 2021, only 45% of adults in Mexico own a bank account, as compared to 88% in Brazil, 82% in Chile, 60% in Argentina, 60% in Colombia, and 54% in Peru.

Also, the credit-to-GDP ratio in Mexico stood at just about 34% - stubbornly low relative to comparable Latin American countries. To address the problem, the government launched in 2016 the National Financial Inclusion Strategy (NFIS) to accelerate access to financial services for the population currently left out. Moreover the FinTech Law, passed in March 2018, which aims to develop Mexico’s own Open Banking Standard, is expected to help foster innovative solutions for people currently excluded from the financial system. In January 2020, the government issued its first license to NVIO Pagos México to operate as a financial technology institution under the new law. In 2021, there were at least 93 fintech firms in the process of obtaining their license. Currently, there are now 284 fintech startups in Mexico City.

Mortgage interest rates rising

Mortgage interest rates are now rising, following the central bank’s successive interest rate hikes. In February 2023, interest rates for mortgage loans offered by banks and Sofoles ranged from 10.84% to as high as 24.8%, with an average of 13.59%. This was up from an average of 12.5% in February 2022 and 12.85% in February 2021.

Then in March 2023, the central bank Banco de Mexico (Banxico) raised its key rate further by 25 basis points to 11.25%, its 15th consecutive rate hike and adding to the cumulative 725 basis points rate increase since the start of the bank’s tightening cycle in June 2021 to address persistent inflationary pressures. The recent decision lifted borrowing costs to their highest level on record.

“We anticipate Banxico is nearing the end of its policy tightening cycle absent a resurgence of inflationary pressures that may de-anchor inflation expectations. We project policy rate will peak 11.5% by mid-2023, and Banxico will begin a gradual policy easing in the later part of the year,” said Carlos Morales of Fitch Ratings.

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Small but gradually developing mortgage market

The non-subsidized private mortgage market in Mexico is small, at around 11.4% of GDP in 2022, just a bit higher than the 9.6% of GDP a decade ago. Mortgage lending from non-banks accounts for 63% of all mortgage loans.

During 2022, the total value of mortgage loans outstanding rose by 7.7% y-o-y to MXN 3.24 trillion (US$180 billion), following annual increases of 7.4% in 2021, 7.8% in 2020, 6.7% in 2019, 8% in 2018, and 8.7% in 2017, according to figures released by Banco de Mexico.

Over the same period:

  • Banks: mortgage lending was up 11% y-o-y to MXN 1.26 trillion (US$69.8 billion), following annual growth of 9.9% in 2021 and 9% two years ago.
  • Non-banks: mortgage lending was up by 5.7% y-o-y to MXN 1.98 trillion (US$110.2 billion), after rising by 6% in 2021 and 7.1% in 2020.

Since 2000, banks have made significant changes leading to better access to loans.

  • Mortgage processing fees have been reduced to an average of 3%, from 6%.
  • Loan to value ratios have been raised to 80% - 90% from 65% or lower.
  • Loan terms have been lengthened from 10 - 15 years in 2000, to the current level of up to 30 years.

The Institute of the National Housing Fund for Workers (INFONAVIT) is the Mexican government’s main housing lender and the third largest mortgage institution in the world.

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Mexico’s economy to slow this year

Mexico’s economy grew by a modest 3.1% during 2022, following an expansion of 5% in 2021 and a contraction of 8.1% in 2020, according to the national statistics agency INEGI. The growth was mainly driven by the primary sector and despite an ongoing aggressive monetary tightening cycle.

Foreign direct investment (FDI) rose strongly by 12% last year to reach US$35.3 billion, partly buoyed by the recent uptick in “nearshoring” – a trend to move production closer to North American buyers and away from Asia to avoid supply chain disruptions.

“We believe near-shoring is an important growth opportunity through higher US demand for Mexico’s production as suppliers relocate from China. Anecdotal reports suggest that Mexican industrial parks across the US border are nearing full capacity, demonstrating an increased demand for production relocation, which could start to boost investment,” said Fitch Ratings.

However, Mexico’s economy will slow this year, amidst an expected slowdown in demand from the U.S., its main trading partner. The IMF expects the Mexican economy to grow by just 1.7% in 2023 while Fitch Ratings is more pessimistic, expecting an economic growth of just 1.4% for the country this year.

Though it is not far from Mexico’s sluggish economic growth of just 1.9% annually, on average, from 2009 to 2019.

“We forecast growth to slow to 1.4% in 2023 (2024: 1.6%) as a mild US recession dents demand for manufacturing exports,” said Fitch Ratings. “A more severe-than-forecast US slowdown would weigh further on Mexico given their deep economic integration (more than 80% of Mexico’s exports are sent to the US).”

Consumer prices were up by 6.86% in March 2023, the lowest level since October 2021 but still far above the central bank’s target range of 2% to 4%. Nationwide inflation averaged 4% from 2011 to 2021, before increasing to 7.9% in 2022.

The nationwide unemployment rate was 2.7% in February 2023, down from 3.7% in the same month last year and the lowest level since February 2003, according to INEGI.

Underemployment was also down to 7.4% in February 2023, as compared to 9.2% a year ago.

Politics, drugs and corruption

With barely a year and a half left in his term, President Andrés Manuel López Obrador (famously called AMLO) held a massive rally in March 2023, which was considered by many as the de-facto opening salvo to the 2024 general elections that will choose the president’s successor.

AMLO hopes to choose a nominee for his left-wing National Regeneration Movement (MORENA) who will continue his political program, known as the “Fourth Transformation”, which aims to end corruption, grow the economy, reduce violence, build infrastructure, and expand social programs intended to reduce poverty and inequality. Most polls show Mexico City Mayor Claudia Sheinbaum as the frontrunner in the race, followed by Foreign Relations Secretary Marcelo Ebrard.

In his more than four years in office, AMLO instituted actions such as programs of cash payments for seniors and students and raising the minimum wage. However, he has been criticized for his handling of the pandemic, the economy, security, and the persistently high level of gang violence and killings. Yet AMLO, a popular and populist figure, still enjoys approval ratings of about 60%.

In general elections in July 2018, AMLO inflicted a massive defeat on the previously-ruling Institutional Revolutionary Party (PRI). Obrador won a landslide victory with 53% of the votes, defeating Ricardo Anaya of the National Action Party (PAN) (22%), José Antonio Meade of the PRI (16%), and independent candidate Jaime Rodríguez (5%).

AMLO is the first president to win an outright majority since Mexico transitioned to democracy in 1988, and the first elected president not to come from either the PRI or its predecessors. He took office on December 1, 2018.

AMLO’s presidency follows that of the PRI’s Enrique Peña Nieto (called by many “the new face of the old guard”) who was president 2012-2016. He promised big changes, and was initially feted by investors. However many soon came to feel that Nieto intended to re-establish the PRI’s old corrupt hegemony.

Nieto was involved in two major housing scandals:

  • The revelation that first lady Angelica Rivera’s US$7 million (MXN 139 million) house in Lomas de Chapultepec was registered under the name of a construction company property that received contracts in the state of Mexico when Nieto was governor.
  • In November 2014 a high-speed train contract was awarded to a Chinese-led consortium. The contract was later scrapped when it was revealed that the president’s White House family mansion had been paid for by a contractor who was a member of the train consortium.

From 2000-2012 the PRI’s long and corrupt rule was interrupted by the National Action Party (PAN), with power held 2006-2012 President Felipe Calderon. He brought big changes. Although drug-related violence has been present in Mexico for the past three decades, the government had passively ignored the problem from the 1980s to early 2000s, until Calderon implemented a militarized approach to dealing with the drug cartels.

Calderon may have been partially successful, but around 60,000 people were killed during his campaign against drug cartels. Exhaustion with this seemingly unendingly escalating toll of violence returned the PRI to power in 2012.

Violence remains a pressing problem. Based on official homicide figures, 2022 was the least violent year since AMLO took office in 2018, but the number of murder victims remains high. There were 30,968 homicides recorded last year, down by 7.1% from the previous year and by 10.8% as compared to the record high of 34,718 in 2019, according to Security Minister Rosa Icela Rodriquez. However, homicides remain at historically high levels – exceeding the 30,000 mark for the fifth consecutive year.

Mexico has a homicide rate of about 25 to 30 deaths per 100,000 people annually – one of the highest in the world. In 2022, Mexico is home to nine of the ten cities with the highest homicide rates in the world: Colima, Zamora, Ciudad Obregon, Zacatecas, Tijuana, Celaya, Uruapan, Ciudad Juarez and Acapulco.

Despite this, a study conducted by BBVA Research has suggested that violence has only a limited effect on domestic housing sales, because the violence is very regionally concentrated.