Q2 Central Pacific Costa Rica Outlook – Back in the Saddle Again

No, this is not an Aerosmith song from the 70’s… but there is a strong correlation.

The most popular question we get from prospective customers is “Where do you think we are in the Costa Rica real estate cycle?” I have given a lot of thought to this question and I do my best to stay current when responding.

Are we at the bottom of the market? Do we have more downside equity pressure? Has the market left the train station? All excellent questions to ponder in this blog-cast.

Based purely on supply v. demand analysis, one can argue that we still have a few percentage points of downward pressure left in this market. I fully respect this position. Supply is abundant, perhaps even growing, while demand is clearly increasing. But we are not yet where demand needs to be in order to tip the needle. We continue to see more and more sellers seeking to capture the new demand and are rushing to get their listing on the market.

The outcome of this would tell us that we have some downside pressure left – I am not in this camp.

In the last 16 months, 68 homes have sold between Hatillo (Dominical) and Ojochal. That is a lot of inventory being absorbed by the market. Most of which was stale inventory, some having been on the market for 5 years! Only 41 new home listings have come on the market.

At the same time, a handful of larger farms have sold. We haven’t seen that since 2006. The flow of funds has made its way to our area and the trend continues to improve. Investors are seeing value and they are trigger-happy.

The weak spot in our market is buildable lots. There is an abundance of ocean view lots and this sector continues to grow. Supply is high, thus tremendous values for today’s buyer.

Prices in the broader market have yet to take off. I believe we are still 9-12 months from witnessing any such appreciation here. We have more inventory to absorb and need continued demand growth before such an event occurs.

So where are we? We are Back in The Saddle of this down market. There could be another 5% reduction in prices in the general market and perhaps we are seeing the leading edge of a 5% increase in 2014.

Our data shows that we are at the bottom and for any of you “buyers” still on the fence, you should take this article to heart and get engaged in the market data. Request reports (yes we have such) and make your own educated decision.

Buy low, sell high? We believe that we at the bottom based on the data. It does not get much better than this.