Puerto Rico housing market on upswing despite obstacles
Estudios Técnicos study reveals challenges and opportunities
SAN JUAN — After the impact of Hurricane Maria in 2017, Puerto Rico’s housing market grew the following two years, registering a 78% increase in the sale of new residences and a 17 percent increase in resold homes, research from Estudios Técnicos presented at the Mortgage Bankers Association shows.
Despite the current growth, the island’s housing market stakeholders still need to create strategies to face major challenges in the future, such as a smaller economy and labor market compared with 2006—before the island’s ongoing economic decline began—as well as the steadily dropping population, Graham Castillo, the COO and president of consulting firm Estudios Técnicos, said during his presentation.
“The Puerto Rico real estate market is improving, as reflected in the price trends and housing sales. The lack of housing supply in certain markets is even driving price increases in these markets. It is a niche market,” Castillo said, again warning, that the industry has to continue adapting to the expected changes in socioeconomic and demographic conditions.
Castillo sees opportunities in mixed developments like Ciudadela or the concept of live-work-play communities. There are also niche markets for small housing units for an aging population that wants to downsize and a market for high-end properties for investors decreed under tax incentive Acts 20 and 22, who want to live in the beachside Condado and Ocean Park areas of San Juan.
“The bulk of the market is going to be homes priced at less than $180,000,” he said.
In an analysis of home sales between 2012 and 2018, the report showed a marked decrease in 2017. The reduction was directly related to Hurricane Maria, since, until then, the sales trend surpassed 2016’s. In 2018, sales increased again, to 10,789, or 8,805 more than in 2017.
Between 2017 and 2018, there was a 78% sales increase for new housing units at lower prices. The average sale price in 2017 was $175,071 but dropped 8% in 2018, to $161,503. A total of 1,433 new homes were sold in 2018 versus 807 in 2017. The regions where most new homes were sold were Ponce, Mayagüez and San Juan.
In the case of resold units, sales increased 17%. The average sale price rose 1%, to $130,164, from 2017 to 2018. A total of 9,356 homes were resold in 2018 versus the 7,998 resold in 2017. Regarding prices, 71% of the sales in 2018 were residences under $150,000.
The sales trend for the first four months of 2019 (2,484 homes) exceeds the first quarter of 2018 (2,304). The inventory of newly built homes, as of March, includes 151 new residential projects with 1,446 available units; this is 10.9% less than the inventory in December. Seventy percent of that inventory are units priced at $200,000 or less.
Regarding the challenges and opportunities for the housing market, Castillo explained that the three biggest obstacles for the housing and mortgage industry in Puerto Rico are a smaller economy, which since 2006 has contracted 19.1%; a reduced labor market, which between 2007 and 2019 had a net loss of 158,000 jobs (63,700 in the private sector and 95,200 in the public sector); and a decreasing population (from 3.8 million in 2000 to 3.1 million in 2018) due to the drop in births and outmigration. The island’s population is projected to continue dwindling until reaching 3 million in 2022.
On the positive side, one of the opportunities for the housing market is that after Hurricane Maria, the labor market has begun to strengthen and there is a moderate increase in the number of households with an annual income of more than $50,000. There are other indicators of economic improvement as of September 2017 that include greater Treasury revenue, and rising cement and auto sales as well as employment.
Federal Community Development Block Grant – Disaster Recovery program funds for the island’s reconstruction initially amount to $9.73 billion and represent an opportunity for the industry, as 49% of these are for the construction of new housing.