Costal Tourism Development in Costa Rica & the US Housing Market

As an Economics major, and generally as an American citizen interested in the financial sphere, I am relatively familiar with the Great Recession of 2008 and the constant recovery since. Last semester, I actually had the opportunity to research in more depth the recent financial crisis, specifically how it began in the housing market and how this market was continually affected. The information I gained from my prior research proved useful while reading this report because of the strong connection, through investment, between the US economy and Costa Rica’s real estate and tourism markets which Honey describes as “closely tied to the U.S. market,” (Honey, 7). Honey emphasizes the causal relationship between foreign investment (the majority of which comes from the US) and coastal tourism development in Costa Rica. As a result, I gathered that in order to accurately understand why coastal tourism development in Costa Rica has experienced dramatic changes in pace since 2002, it is important to “follow the money,” meaning, study the investors.

As mentioned above, the majority of the foreign investment in Costa Rica’s coastal tourism development comes from the US, 55.7% in 2007 (Honey, 50). Because of the described direct tie between US investors and the coastal tourism development (CTD) market in Costa Rica, I would expect that changes in loan availability for investors in the US would have a direct impact on Costa Rica’s CTD market. From about 2000 to 2006 the US real estate market worked in what can be depicted as a three step cycle: (1) loans increased ---> (2) the number of houses bought increased ---> (3) the price of houses increased. As expected, the benefits of this housing market boom carried over to the coastal tourism development market in Costa Rica, “Between about 2002 and 2008, Costa Rica, particularly the Guanacaste region, became an epicenter for coastal tourism-related development closely tied to the U.S. market,” (Honey, 7).  

Then, in 2006, the three step cycle was no more as the number of houses sold in the US as well as the price of houses fell. As the price homes fell, mortgage rates stayed high and homeowners in the US suffered as their equity in real estate fell dramatically. Honey explained that Costa Rica was not immune to this downfall, “Since late 2008, development has been greatly slowed by the current economic crisis,” (Honey, 7). But, she also discovered that Costa Rica’s residential tourism market would not be as greatly impacted by the US subprime mortgage crisis because, “more than 90% of residential real estate transactions [in Costa Rica] have been conducted in cash, so there are few mortgages on those properties,” (Honey, 50).

The described relationship between the CTD market in Costa Rica and the real estate market in the US is intriguing. It would be interesting to find a more recent report on the impact of coastal tourism development in Costa Rica and see how the recovery of the US economy has affected this market over the last 5 years.

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