2024 Cabo Real Estate Market Update: Navigating a Buyer’s Market

Various factors may be responsible for the drop. First, it is an election year in both the U.S. and Mexico, which has deterred people from taking action. Additionally, interest rates remain high. Many of our buyers come from the U.S., so the elevated interest rates make investing in South Baja less appealing, partly because using a HELOC to purchase a home here becomes more expensive.

Another factor is that the dollar has substantially weakened against the peso. This devaluation makes prices more resistant to drops, as costs for developers in South Baja are in pesos even if sale prices are in dollars. While the dollar has gained strength against the peso since the Mexican presidential election, enhancing American purchasing power, it has yet to regain the ground it lost since mid-2022.

Perceptions of risk based on data and emotions play a significant role in real estate buyers’ decisions. Changes in consumer sentiment can occur quickly. Reflect on the pandemic: There was widespread apprehension, but suddenly, the situation shifted significantly.

As it was in the past, it will likely be today. The uncertainty surrounding the elections in Mexico and the U.S. will clear up, and consumers will get past the shock of higher interest rates and a smaller dollar-to-peso ratio.

While it is impossible to predict whether sales will pick up in the remainder of the year, what is certain is that fluctuations are typical in real estate. Markets are rarely in equilibrium and tend to lean toward oversupply or excessive demand.

In the industry, this is called buyers’ and sellers’ markets. A helpful indicator for comprehending this is the absorption rate. It is calculated by dividing the number of properties sold in a given period by the total number of available properties. If there are 6 to 7 months of inventory or less, it’s a sellers’ market; if there are 6 to 7 months or more, it’s a buyers’ market.

In Cabo San Lucas specifically, it’s now a buyer’s market, offering multiple options and lower prices. The market is experiencing a shift from continuously rising prices to an increase in inventory and expected price drops. A dramatic example is the Cabo Corridor, which includes El Tezal. As of June 2023, we are approaching an 18-month absorption rate, marking it as a buyer’s market.

However, price changes vary across sub-markets within the larger Baja California Sur market. For example, oceanside homes in Palmilla show a solid pricing trend. These assets are founded on outstanding lifestyle fundamentals — a beachside location in a coveted golf community — making them less sensitive to market volatility.

The current market poses several challenges for real estate agents, especially on the listing side. As buyers have more negotiation leverage, only the best properties, marketed smartly and priced right, will stand out. Industry veterans who have been in the business for more than ten years note that the recent market situation is a return to normalcy post-pandemic rather than anything close to collapse.

Sellers must stay realistic and align their expectations with actual market dynamics. Not doing so leads to extended periods on the market and impacts the overall market reputation. For buyers, this is an excellent time to negotiate. A wide variety of options are available, and in the long term, finding the right product can result in a solid investment.