“Neither of us had ever been there before, but I read a blog post and thought it was great,” she says, “during those three days we found a beach house and talked to a real estate agent. We were shocked at how affordable it was, especially considering we were living in San Diego at the time, where a house like that would cost millions of dollars. This one cost $160,000!”
With the rise of remote work, Americans moved to Mexico at a record pace between 2019 and 2022. The Wests were part of that trend, buying their home in Mexico in February 2020. However, they have seen their purchasing power decline lately as the Mexican currency has sustained a relatively long period of appreciation against the dollar. Remittances sent by compatriots abroad and foreign investment have boosted the Mexican currency by 16% since March 2022. Residence permits requested by Americans in Mexico have decreased and so has tourism, which experts say also has to do with the strength of the currency.
“People are definitely delaying their plans to move because they expect that in a year or two the peso will go up again and they will be able to buy more and better,” says West. The American started a YouTube channel called Almost Retired in Mexico, where he provides practical information for those looking to move as well. His videos accumulate tens of thousands of views, so he created a parallel consultancy. In a recent video, he answers a viewer’s question: how high would the peso have to go for life in Mexico to be as expensive as in the United States? According to his calculations, at about 8 pesos per dollar. The currency is currently trading just below 17 pesos “and some predict that it will continue with this trend,” he says.
Nearly 1.6 million Americans live in Mexico, according to figures from the U.S. State Department. The number of Americans who received a residency permit in Mexico increased by 70% between 2019 and 2022, a record jump. Last year, the number fell by 7%, according to the most recent government data. Likewise, GDP from tourism contracted by 0.2% in the last quarter of 2023 compared to the previous quarter, according to the National Institute of Statistics and Geography (Inegi), which shows how the strength of the currency is strongly impacting the economy, says Carlos Capistrán, chief economist for Mexico and Canada at Bank of America (BofA).
“This strength of the peso, which, as we economists say, is the nominal exchange rate, has been reflected in the ‘real’ exchange rate, which is adjusted for inflation here and inflation in Mexico’s trading partners, which is basically the United States. It is this exchange rate, the real one, that has also strengthened a lot,” says Capistrán. His estimates show that the price of goods and services in Mexico, relative to those in the US, has risen 30% in the last three years.
In a certain sense, what we are seeing is a more intense stage of economic integration between Mexico and the US, explains the specialist. “Now that the United States is in a trade fight with China, it is normal for Mexico to become more integrated and, indeed, since the pandemic, this integration is accelerating and we see many more people from the United States living in Mexico and more Canadians as well,” adds Capistrán.
Another part of this equation has to do with how expensive life has become for Americans in their own country. Jeremy Horpedahl, an economics professor at the University of Central Arkansas (UCA), says that housing prices have skyrocketed over the past two decades, forcing many to move to more affordable cities. “We are starting to run out of cities in the United States, that is the problem,” says Horpedahl. “From what I have analyzed, the number of cities that are now considered affordable in terms of housing is shrinking, which could be part of what you are seeing with people moving to Mexico,” explains the academic.
“The middle class today has more wealth and income than ever, but much of that wealth is tied to housing. The value of their homes has increased, and that is good for them in some ways, but if they want to move somewhere new, they will have to face higher housing costs wherever they go,” adds Horpedahl.
Tom Fullerton, a professor of economics and finance at the University of Texas at El Paso (UTEP), expects the strengthening peso to reduce the number of retirees moving to Mexico. “It will also reduce the attractiveness of border residents with Mexican passports to buy real estate on the southern side of the international border in cities like Tijuana, Mexicali, Nogales, Ciudad Juarez, Nuevo Laredo, Reynosa and Matamoros,” he says.
“Of course, the price of housing, health care and medicine costs in the United States will continue to attract residents from north of the border to move to Mexico and buy there,” he adds. The cost of medical services, which have skyrocketed in the United States over the past decade or so, is another factor that foreigners find attractive. In Mexico, the universal public health care system, while insufficient and flawed, does reduce the costs of private care.
Both Fullerton and Capistran believe that the peso will remain strong in the short term. “It’s worth noting that the peso is no longer undervalued against the dollar and that means that, barring a major financial, economic or political crisis, the currency premium is not likely to return anytime soon,” Fullerton says.
Capistrán and his team at BofA expect the currency to trade below its current levels and reach 18.25 pesos per dollar by the end of the year, driven primarily by changes in monetary policy. “We expect a depreciation in the next few months until the end of the year. It’s a moderate depreciation. But the real exchange rate is still going to remain very strong,” he adds.
In the meantime, West remains optimistic about his life in Mexico and his online business. “A lot of people are delaying their plans,” he says, “but there are also a lot of people who say, ‘I moved to Mexico because life is too short and if the peso changes, life is still too short. So I’m going to enjoy my life no matter what. ’”
Source: elpais
