P.R. housing market on the mend after Hurricane María
Puerto Rico’s housing market improved between 2017 and 2018, after recovering from the impact of Hurricane María, showing a 78% increase in new homes sale and an 17% increase in previously owned homes, a study by the Estudios Técnicos research firm showed.
However, despite the current improvement, Puerto Rico’s housing market will have to create strategies to face major challenges in the future in an economy and job market smaller relative to 2006, and the continued population decline, according to the findings of the report presented by Estudios Técnicos President Graham Castillo during the Mortgage Bankers Association’s annual convention.
“Puerto Rico’s housing market is improving, as reflected pricing trends and home sales. The lack of housing inventory in certain markets of the island is even pushing price increases in those markets,” Castillo said. “It is a niche market.”
He warned, however, that the industry must continue to adapt to the expected changes in socioeconomic and demographic conditions.
In an analysis of home sales between 2012 and 2018, the report showed a sharp decline in 2017, related to Hurricane María. Until then, the trend in home sales exceeded those of 2016. In 2018 they rose again to 10,789, a number higher than the 8,805 homes sold in 2017.
Between 2017 and 2018, there was a 78% increase in unit sales of newly built homes at lower prices. The average selling price in 2017 was $175,071, which decreased by 8% in 2018 to $161,503. In total, 1,433 new homes were sold in 2018 vs. 807 in 2017. The regions where most new homes were sold are Ponce, Mayagüez and San Juan.
In the case of previously owned of housing sales, there was a 17% increase. The average selling price in this sector increased by 1%, to $128,546 in 2017 to $130,164 in 2018. A total of 9,356 existing homes were sold in 2018 vs 7,998 in 2017. As far as prices, 71% of sales in 2018 were for residences of less than $150,000.
The trend in sales in the first quarter of 2019 (2,484 homes) exceeded the first quarter of 2018 (2,304.) The current inventory of new housing as of March 2019, includes 151 new residential projects, with an inventory of 1,446 units available.
This is 10.9% less than the inventory available in December 2018; 70% of this inventory is priced at $200,000 or less, the study revealed.
Challenges and opportunities for the housing market
Castillo explained that the three biggest challenges for Puerto Rico’s housing and mortgage industry are:
- A smaller economy, which since 2006 has experienced a total economic contraction of 19.1%;
- A reduced labor market, which from 2007 to 2019 had a net loss of 158,000 jobs (63,700 in the private sector and 95,200 in government); and,
- A declining population (3.8 million in 2000 to 3.1 million in 2018) due to the drop in births and migration. The projection is that the population will continue to decrease until reaching 3 million in 2022.
On the positive side, one of the opportunities for the housing market is that after Hurricane María, the labor market has begun to strengthen and there is a moderate increase in the number of households with annual income of more than $50,000, Castillo said.
There are other indicators of economic improvement as of September 2017 that include higher revenues from the Treasury Department, an increase in cement sales, auto sales and employment.
Federal funding for housing reconstruction under the CDBG-DR program initially amounted to $9.7 million and represent a great opportunity for the industry, as 49% of these are for the construction of new housing, he said.