March 05, 2006

Good News from Mexico

BUSINESS WEEK has a fascinating article on the growth of Mexico's middle class that suggests several important consumer trends are taking hold in the country. While one wishes for a bit more specificity in the magazine's story, there's no missing the very positive economic trends it points out.

The most important of these is the stellar growth in what was a practically non-existent home-mortgage market. According to Business Week, mortgage rates are down to 9 pc per year, allowing great numbers of middle-class families to afford mortgages. Some 560,000 mortgage-backed homes were built last year; some 750,000 will be built this year.

When I was in Mexico last year, I found myself discussing this very subject with my parents. The question of how one bought property in San Miguel de Allende had come up, and I became aware that cash was the usual, if not the only, option for buying. Mortgages on Mexican property were not something one could generally get. So to hear that the mortgage market has been expanding at breakneck speed is really cheering: because, as Business Week points out, it means the country has become more stable.

It should also mean the country will become richer very soon. With a stable mortgage-financing mechanism in place, middle-class Mexicans will be able to fully take advantage of the capital in their homes. As economists such as Hernando de Soto have pointed out, freeing that capital is a key factor in wealth creation. Furthermore, one can imagine that competitive Mexican banks will soon offer other financial products, refinance mortgages, and so on, further helping to increase the wealth of middle-class Mexicans.

I have to admit I'm surprised at Business Week's calculations that to be part of the Mexican middle class, a household would have income between US$7,200 to US$50,000. It's not the lower end I find surprising; that figure actually sounds about right. It's the higher end that made me raise an eyebrow. US$50,000 is equal to about 550,000 Mexican pesos, and that sum would go a really long way in most parts of the country. However, this may be a sign that the country has become more prosperous, quicker, than I had thought.

That said, I also wish Business Week would have said more about where in Mexico these trends are taking place. Since conditions are so different around the country, it would have been neat to know just where exactly these things are happening. Still, I have to give the magazine a lot of credit for producing a timely and interesting story.

Posted by Benjamin Kepple at March 5, 2006 10:15 PM | TrackBack

The Mexican middle class is definitely on the increase and nothing could be more important to the future of the country. Better capital markets and a stronger banking industry should be key pillars for continued growth. This July's Mexican presidential election will set the tone for what comes next for the next six years. Currently, a left leaning populist is leading the polls but the race may be tightening.

Posted by: Swammi in Guanajuato at March 6, 2006 02:17 PM