Earlier this year I wrote a post that attempted to forecast the Costa Rica real estate market for 2022 and beyond. In large part what I wrote has been consistent with experience.
Nevertheless, this very fluid situation continues to evolve. There have been changes in the financial and political landscapes that could indeed spell trouble (or, perhaps, opportunity) in the year(s) to come…
The Financial Landscape
While I correctly predicted the possibility of inflation rearing its ugly head in 2022, I had no idea it would do so to the extent that it has.
At the moment inflation in the U.S. is the highest it’s been since the 1980’s. As a result the Federal Reserve has taken strong action to apply the brakes on an overheated economy, which has been driven by historically exorbitant government spending and post-pandemic pent-up demand.
And I believe one or two more rate hikes could come later in the year.
As a direct result interest rates on mortgages have doubled from that of recent years, soaring from 3% to 6%!
Of course, I purchased my first home back when even higher 30-year fixed rate mortgages were the norm.
Despite the recent hike in rates, the real estate market in the U.S. remains relatively strong, but with signs of weakness beginning to show.
What does that have to do with Costa Rica real estate sales in the short term?
Well, I have Costa Rica deals currently contingent on sales happening in the U.S. And those rising mortgage rates only add to the anxiety!
In addition to “potential” U.S. real estate market woes, the stock market has now entered into “bear” territory. And the crypto market has all but collapsed.
What does all this mean for Costa Rica real estate in the coming months and years?
Well, at first blush you’d think it would mean bad stuff.
However…
One thing I predicted in my previous article that has not come true, yet, is weakness in the U.S. dollar. The dollar has now reached the record level of 700 colones. Efforts by the Costa Rica government to strengthen the colon against the dollar have been to no avail. The colon continues to sink. That, of course, makes earning dollars and then buying colones-priced goods a lot more attractive…
Will a strong dollar offset other negative aspects of a broader U.S. economic slowdown?
Will dollar strength against the colon (and other currencies) continue, despite high inflation in the U.S.?
Those are difficult predictions to make.
In my opinion, the Costa Rica real estate market, a least that part of it currently dominated by foreign investment, will stay strong, basically as long as buyers have the money to buy.
For foreigners, Costa Rica is a cash market, for the most part. So, it stands to reason, that the market will stay strong as long as those foreigners have the money to buy with cash in Costa Rica. That is, if other, politically inspired, reasons for moving here either remain the same, or increase (see below).
The wildcard in all that is just how low can the economy in the U.S. go without dampening the will to sell everything and move to a foreign country? Can the government orchestrate a “soft landing” and tame the inflation beast?
Only time will tell.
The Political Landscape
There have been some nuclear level bombshells that have rocked the U.S. politically…
Most notably, the revelations of the January 6 commission as have been displayed before our very eyes and ears during the ongoing public hearings.
And, perhaps even more or equally notable, the historic overturning of the Roe v. Wade decision by the U.S. Supreme Court. A decision that has seen the court engage in the almost unheard of action of taking away an individual right that had been enshrined and enjoyed by women for over 50 years.
Now, I’m not going to shed any personal political views on these two events, but only offer my opinion on how they might affect the Costa Rica real estate market.
As was stated in the previous article, the political goings on to our north have been a major driver of the wave of immigration Costa Rica has seen in the last two years from both the U.S. and Canada.
The U.S. remains a deeply divided country. Those on each side of that divide are not happy with the direction of the country. In Canada, a very similar scene is occurring, with opponents of the Trudeau administration representing the vast majority of Canadian expats in Costa Rica.
Therefore, I can only see these deepening political divides playing an even stronger role in the decision to leave the U.S. (or Canada) for greener pastures. And Costa Rica appears to be one of those preferred greener pastures.
There is also the looming specter of the 2020 mid-term elections and the Kraken that could be released in 2024, if Donald Trump is able to gain the Republican nomination. If he is able to pull off another of his “Teflon Don” miracles and escape the criminal ramifications of what the Jan 6 commission is revealing, he may very well become Number 47!
What would that mean for Costa Rica real estate, as well as the stability of the world at large?
I shudder to predict.
Let’s not get that far ahead of ourselves. After all, there’s plenty to think and worry about long before we ever get to 2024.
The bottom line of all of the above is that it seems to me that the Costa Rica real estate market will remain strong in 2022 and probably remain strong in 2023. Although by next year, economic weakness in the U.S., especially in the housing sector, could spell slower sales than we’ve been experiencing since late 2020, when the Costa Rica market took off like a rocket!
In the short to mid-term, I believe the COVID-inspired desire and ability to work remotely, the strong desire to escape political strife, and swollen bank accounts filled by insanely hot financial markets in 2020 and 2021, should keep driving the current “expat invasion,” at least a good while longer.
