Photographer: Susana Gonzalez/Bloomberg

Three Years After Housing Implosion, Mexico Risks Another Mess

  • Moody’s says Mexico repeating some mistakes from 2013 bust
  • Government has almost doubled low-income mortgage subsidies

Three years after Mexico’s housing crisis wiped out $4 billion in stocks and bonds, the industry risks suffering another downturn.

That’s because President Enrique Pena Nieto has close to doubled subsidies for low-income housing in the past two years. Moody’s Investors Service analyst Francisco Vazquez said that has encouraged developers to go on a construction spree even as a sluggish economy saps demand for new homes. Much of the new building is also taking place in the outskirts of major cities where few services are available, he said.

Pena Nieto himself roiled the housing market shortly after taking office in 2012. He said his government would use its subsidies program to steer construction closer to city centers at a time when some homeowners in far-flung developments were being left with no basic services. Vazquez warns that the overbuilding threatens to hurt Mexico’s residential mortgage-backed securities market, where default rates remain above the 4 percent level they reached during the 2013 meltdown.

“Mexico’s housing policy faces a huge challenge,” Robert Rauch, who oversees $6.3 billion of assets at Gramercy Fund Management LLC in Greenwich, Connecticut, said in an e-mail. Homebuilders are constructing “units that are significantly cheaper to build but remain far outside the main city centers.”

While housing inventory rose in 2014, it has fallen this year as homebuilders may be adjusting to a worse economic outlook, Conavi, the agency responsible for Mexico’s subsidy policy, said in an e-mailed response to questions. In addition, Pena Nieto’s new policy has begun to bear fruit, with new homes built within urban limits growing to 80 percent in 2016 from 70 percent in 2014, Conavi said.

The peso weakened 0.6 percent to 18.4611 per dollar at 9:29 a.m. in Mexico City.

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