Mexico's Residential Property Market Analysis 2024

Mexico´s housing market continues to expand, buoyed by strong domestic demand and returning foreign homebuyers. In Q1 2024, the nationwide house price index rose strongly by 9.64% compared to the same period last year, following y-o-y increases of 10.02% in Q4 2023, 10.39% in Q3, 11.54% in Q2, and 11.69% in Q1, according to the Sociedad Hipotecaria Federal (SHF). When adjusted for inflation, house prices increased by 5% y-o-y in Q1 2024.

On a quarterly basis, nationwide house prices rose by 2.86% (1.24% inflation-adjusted) during the latest quarter.

Mexico´s house price annual change

In Q1 2024:

  • New houses registered an average price growth of 10.36% (5.69% inflation-adjusted) from the previous year, after increasing by 15.33% in Q1 2023.
  • Existing houses had a price increase of 9.07% y-o-y (4.45% inflation-adjusted), following an annual growth of 10.75% in Q1 2023.

Among the metropolitan areas, Tijuana recorded the biggest y-o-y house price growth of 12.8% (8.02% inflation-adjusted) in Q1 2024, followed by Monterrey (11.8%), Querétaro (11.56%), León (10.28%), and Puebla-Tlaxcala (10.19%). Strong house price increases were also registered in Guadalajara (9.26%), Toluca (7.98%), and Valle de México (6.77%).

Mexico´s housing market takeoff comes after it has suffered prosaic growth for a decade. From 2015 to 2023, house prices rose strongly by 87.9%. Though, in real terms, the cumulative house price growth is more modest, at 26.7%.

MEXICO HOUSE PRICE INDEX, ANNUAL CHANGE (%)
Year Nominal Inflation-adjusted
2009 4.75 0.75
2010 3.70 -0.53
2011 5.90 2.32
2012 2.90 -1.17
2013 4.07 0.40
2014 5.12 0.90
2015 6.71 4.34
2016 5.82 2.49
2017 8.56 1.85
2018 9.35 4.32
2019 7.66 4.58
2020 5.38 1.79
2021 8.56 1.47
2022 10.41 2.23
2023 10.02 5.37
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 is 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.

This is despite the fact that the value of the Mexican peso (MXN) has actually appreciated by nearly 22% against the US dollar since January 2022, reaching an average exchange rate of USD 1 = MXN 16.813 in May 2024.

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 Monthly Average Exchange Rates graph

Mexico´s economy grew by a modest 3.2% during 2023, following expansions of 3.9% in 2022 and 5.7% in 2021 and a contraction of 8.6% in 2020, according to the national statistics agency INEGI. The continued growth was mainly attributed to robust private consumption and investment, with notable strength in the services sector, construction, and auto production.

Foreign direct investment (FDI) rose strongly by 27% to reach a record US$36.1 billion in 2023 from US$28.4 billion in the prior year, according to the Ministry of Economy. About 38% of this came from the U.S., its main trading partner, followed by Spain and Canada, with a 10% share each, Japan, with an 8% share, and Germany, with a 7% share.

However, Mexico´s economy continues to show signs of slowdown. In Q1 2024, the country recorded a real GDP growth of 1.6% from a year earlier - the slowest level in three years. On a quarterly basis, the economy grew by a meager 0.3% in Q1 2024.

Both the International Monetary Fund (IMF) and Fitch Ratings expect the Mexican economy to expand by 2.4% this year.

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 neighborhoods, 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 neighborhoods 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 middle-class neighborhoods, 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, the 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 on 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 around US$250,000 last year. Apartments in the area have prices ranging from US$100,000 to US$200,000.

Mexico Existing and New House Prices Annual Change graph

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. In Q1 2024, the rental yields in Mexico averaged 5.71%, slightly down from 5.92% in Q3 2023, according to research conducted by the Global Property Guide in March 2024. In general, smaller apartments earn a bigger return.

In Alvaro Obregon, which includes Jardines del Pedregal which hosts some of Mexico´s richest families, rental yields in Q1 2024 ranged from 6.71% for one-bedroom apartments to 4.98% for larger apartments.

In Benito Juarez, the richest alcaldia in Mexico is primarily populated by the middle and upper middle classes, and apartment rental yields range from 5.89% to 6.2%. 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 center, apartment rental yields range from 3.56% to 8.16% in Q1 2024. 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 areas, which are some of the highly-priced districts.

In other Mexican cities, in Q1 2024:

  • Monterrey apartments earn a rental yield between 5.43% to 6.75% with an average of 5.94%
  • Cancún apartments yield between 4.56% to 6.83% with an average of 5.8%.
  • Acapulco apartments can yield you between 4.21% to 5.53% with an average of 4.75%.
  • Puebla apartments yield a stay between 4.72% and 7.44% with an average of 6.43%.
  • Guadalajara apartments earn a yield between 5.75% and 6.74% with an average of 6.23%.
  • Naucalpan de Juárez apartments have a yield between 4.03% and 6.07% with an average of 4.91%.

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, 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 in 2018 by Point2Homes ranked Mexico first among 30 favorite US and Canadian destinations for second home searches. Five years later, a 2023 article by Point2Homes still ranked Mexico as the top destination for U.S. homebuyers.

"Mexico remains undefeated: With more than 130k monthly visits, this land of endless, dazzling beaches and rich culture continues to attract buyers, despite a more subdued increase in interest in the last 12 months," noted the Points2Homes article.

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 the US) tend to invest in new construction or commercial properties and are in the city for work.

Because interest rates in Mexico are high, 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 is 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) accounts 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 NAFTA was signed, the income levels and living standards of Mexicans have been rising. Mexico´s GDP per capita more than tripled to about US$13,600 in 2023, from just about US$4,100 in 1995, based on figures from the IMF.

Mexico GDP Per Capita graph

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 of 6% in 2017. This pressured the central bank to bring inflation back to its +/-3% target. After increasing to 7.9% in 2022, the nationwide inflation rate slowed again to 5.5% in 2023, but still above the central bank´s target range of 2% to 4%. In April 2024, inflation stood at 4.65%.

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 less than 3% of GDP in 2023. 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 has been declining again in recent years, to about 49.1% of GDP in 2023.

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.

The number of Mexicans who own a bank account was estimated to have surged in the past three years, as pandemic-related travel restrictions forced them to remain at home and transact online.

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 and 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 2023, there were already 650 fintech start-ups scattered throughout the country. However, only 46 of the said 650 fintech start-ups are currently operating under its 2018 Fintech Law. One of the reasons cited is slow regulatory approval. Accordingly, it takes more than two years to gain a fintech license.

Mexico Population by Income Class graph

Mortgage interest rates remain high

Mortgage interest rates are still high, following the central bank´s successive interest rate hikes in recent years. In April 2024, interest rates for mortgage loans offered by banks and Sofoles ranged from 11.2% to as high as 28.18%, with an average of 13.89%. This was up from an average of 13.82% in April 2023 and 12.67% in April 2022.

In May 2024, Banco de Mexico (Banxico), the country´s central bank, decided to keep its key interest rate at 11.00%, following its first rate cut in March 2024, as inflation remains above the bank´s target range of 3% plus or minus one percentage point.

"While we expect interest rate cuts to resume soon, we think that monetary conditions will be kept tighter than most expect over the course of this year and next," said Jason Tuvey of Capital Economics.

From June 2021 to March 2023, the central bank implemented a total of fifteen consecutive rate hikes, raising the key interest rate by a cumulative 725 basis points from 4.00% to 11.25%, in an effort to address persistent inflationary pressures.

Mexico Bank and Sofoles Mortgage Rates graph

Small but gradually developing mortgage market

The non-subsidized private mortgage market in Mexico is small, at around 10.8% of GDP in 2023, just a bit higher than the 9.5% of GDP a decade ago. Mortgage lending from non-banks accounts for 63% of all mortgage loans.

In Q1 2024, the total value of mortgage loans outstanding rose by 6.5% y-o-y to MXN 3.54 trillion (US$208.44 billion), following annual increases of 6.3% in 2023, 7.7% in 2022, 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 8.4% y-o-y to MXN 1.39 trillion (US$81.73 billion), following annual growth of 8.9% in 2023, 11% in 2022, 9.9% in 2021 and 9% in 2020.
  • Non-banks: mortgage lending was up by 5.3% y-o-y to MXN 2.15 trillion (US$126.71 billion), after increasing by 4.7% in 2023, 5.7% in 2022, 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.

Mexico Mortgage Lending graph

Economic growth slowing, inflation moderating

Mexico´s economy grew by a modest 3.2% during 2023, following expansions of 3.9% in 2022 and 5.7% in 2021 and a contraction of 8.6% in 2020, according to the national statistics agency INEGI. The continued growth was mainly attributed to robust private consumption and investment, with notable strength in the services sector, construction, and auto production.

Foreign direct investment (FDI) rose strongly by 27% to reach a record US$36.1 billion in 2023 from US$28.4 billion in the prior year, according to the Ministry of Economy. About 38% of which came from the U.S., its main trading partner. It was followed by Spain and Canada, at 10% share each, Japan, with 8% share, and Germany, with 7% share.

However, Mexico´s economy continues to show signs of slowdown. In Q1 2024, the country recorded a real GDP growth of 1.6% from a year earlier - the slowest level in three years. On a quarterly basis, the economy grew by a meager 0.3% in Q1 2024.

Both the International Monetary Fund (IMF) and Fitch Ratings expect the Mexican economy to expand by 2.4% this year, as demand from the U.S. is expected to remain weak.

Though it remains above Mexico´s sluggish economic growth of just 1.6% annually, on average, from 2009 to 2019.

"The Mexican economy is expected to moderate in 2024, following the trend of the U.S. economy. As job growth slows and unemployment ticks up in the U.S., this could affect the flow of remittances, curtailing consumption growth in Mexico. In addition, trade flows between the U.S. and Mexico could be impacted, as demand for intermediate goods declines, causing manufacturing production and exports to decelerate," said the Federal Reserve Bank of Dallas.