The coming Mexican housing boom

Mexico’s inflation subsiding to just 3.7% and a more stable banking environment will allow the country’s largest mortgage provider to offer fixed-rate loans for the first time in June. The state-controlled Infonavit will offer 30-year mortgages to homeowners and plans to issue mortgage-backed securities (MBS) in pesos next year.

Image courtesy Concrete Forms: http://www.everystockphoto.com/photographer.php?photographer_id=9073Mexico enjoys the second lowest inflation rate in Latin American and real interest rates, the benchmark lending rate minus inflation, is just 0.77% compared to 3.76% in Brazil.

Bloomberg reports that the lender has made about 4.4 million loans since 2001 and estimates a national housing shortage affecting more than 8.9 million families.

The current government, as well as leading candidates in this year’s presidential race, all support policies to increase the country’s supply of housing. Banks are looking to housing as a growth opportunity, with outstanding housing loans increasing 16% in January over the last twelve months.

Funding for housing loans, through MBS, is done almost exclusively through inflation-linked currency notes that are tied to the minimum wage. Issuing securities in pesos and at a fixed-rate is expected to increase liquidity and demand for the instruments.

Infonavit sold almost 14 billion pesos ($1.1 billion) of MBS last year and plans to issue around 10 billion pesos ($750 million) in MBS each year through 2017.

With the increase in securitization, Mexico’s housing market could beat expectations for growth this year. Combine this with a rebounding U.S. economy helping from the export side, and the stage is set for an upward drive in asset prices, especially those related to construction and housing.

Cemex (CX, quote) is the largest producer and distributor of cement and concrete in Mexico. The company recently reported that volumes for U.S. cement have jumped in the first two months of the year by almost 20% on an annualized basis.

The company has been plagued lately with high amounts of debt from acquisitions during the U.S. housing boom. A pickup in both the U.S. and Mexican markets should help to improve fundamentals through the next few quarters.

Desarrolladora Homex (HXM, quote) is a development company operating in Mexico and Brazil. The company is principally engaged in the construction and sale of entry-level and middle-income homes in 21 states within Mexico.

Shares are basically flat since the beginning of the year but down almost 40% over the last twelve months. This compares with a loss of about 5.5% for the iShares MSCI Mexico Investable (EWW, quote) and almost 20% in Cemex over the last year. 

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