Cabo Real Estate Market Report Update

Contact Fletcher Wheaton or Alejandro Ehrenberg for help with real estate in Cabo. cabokey.com

Several factors contribute to the recent market slowdown. First, the ongoing election year in both the U.S. and Mexico has created hesitation among buyers. Additionally, high interest rates remain a significant barrier. Many of our buyers are from the U.S., where elevated rates make investing in South Baja less attractive, particularly as home equity line of credit (HELOC) borrowing becomes more expensive.

Another key issue is the dollar's substantial weakening against the peso. This devaluation drives price resistance, as development costs in South Baja are typically in pesos, even though sales are priced in dollars. While the dollar has regained some strength against the peso since the Mexican presidential election, improving American purchasing power, it has yet to recover fully from losses sustained since mid-2022.

Buyer sentiment, influenced by both data and emotions, also plays a pivotal role. Shifts in consumer confidence can happen rapidly. Consider the pandemic: widespread caution turned into a significant market pivot seemingly overnight. A similar trend may emerge now. As uncertainty surrounding the elections diminishes and consumers adjust to higher interest rates and the dollar-to-peso dynamics, the market is likely to stabilize.

Although predicting the remainder of the year is challenging, one certainty remains: real estate markets are inherently cyclical, rarely in equilibrium, and often leaning toward either oversupply or excess demand. These fluctuations create what we refer to as buyers’ and sellers’ markets. A useful metric for understanding these trends is the absorption rate, calculated by dividing the number of sold properties by the total available inventory. A sellers’ market typically has 6–7 months of inventory or less, while a buyers’ market exceeds that threshold.

Currently, Cabo San Lucas is firmly in a buyers’ market. Inventory levels are high, prices are softening, and there’s a shift from the previous trend of rising prices to one of increased supply and potential price reductions. For example, the Cabo Corridor, including El Tezal, has reached an 18-month absorption rate as of June 2023, a clear indicator of a buyers’ market.

That said, price trends vary across sub-markets within Baja California Sur. For instance, oceanside homes in Palmilla remain resilient. These properties, anchored by strong lifestyle fundamentals—beachfront locations within prestigious golf communities—are less affected by market volatility.

This shifting market presents challenges, particularly for agents handling listings. Buyers now have greater leverage, and only well-marketed, appropriately priced properties stand out. Experienced agents recognize this as a return to pre-pandemic market conditions, not a crisis.

Sellers need to remain realistic, aligning expectations with market realities. Overpriced listings tend to linger, ultimately harming both the individual property and the market’s overall reputation. On the other hand, buyers are well-positioned to take advantage of current conditions. With a wide range of options available, those who invest wisely in this market can secure strong long-term value.