PUERTO VALLARTA, Mexico -- Standing on our 10th-floor balcony at the Westin, my wife hands me her binoculars and says, "I think they added the verticals for another three floors while we were having lunch." She points to the framework for yet another skyscraper along the Banderas Bay shoreline.

This is not the usual use of her binoculars. For much of the last week they have been focused on the pelicans and frigate birds that cruise the shoreline or have checked out the regular parade of sail and power yachts that emerge from nearby Marina Vallarta. But today she wants me to watch the high-steel workers maneuver a girder into place as they stand precariously over about 13 stories of air. Beyond this building, three recently completed 20-story buildings stand, awaiting occupants. And up the beach a few steps in another direction are still more condos with magical names --Shangri-La, Grand Venetian, Portofino and Bay Grand.

In fact, new construction goes far beyond the confines of Puerto Vallarta. It is everywhere along this beautiful coast. In the places where it is not yet completed, billboards (in English) announce the imminent arrival of another opportunity to live in unsurpassed luxury and elegance where you can view the world from a plethora of infinity pools. Even distant Sayulito, the charming, funky surfing town celebrated by Barry Golson in Gringos in Paradise, is booming with new construction. Here, in this part of Mexico, real estate is big business.

It's good to know, of course, that if a shortage of condos develops in Miami, there is a backup supply in Puerto Vallarta.

What that means for anyone who has contemplated a second home or retirement in Mexico is very simple: A buyer's market is either here or on its way. The supply of condos and homes for sale exceeds demand.

But let's put it another way. While the number of millionaire households in America has shown stunning growth in the last few years, millionaires are still in short supply relative to the number of luxury opportunities that have been created.

Does this mean a crash is coming to Puerto Vallarta? I wouldn't bet on it. The market here isn't likely to suffer the steep declines we're seeing in such places as San Diego, Las Vegas and Miami. Here's why.

According to Vallarta Lifestyles, whose current 265-page issue is bursting with real estate ads, the average condo resale price rose 79 percent, from $196,000 to $351,000, between 2003 and 2007. That's a hefty premium over the 32 percent increase in the OFHEO (Office of Housing Enterprise Oversight) index for the United States over the same period or even the 50 percent increase for the Pacific states. Sounds ripe for a fall, doesn't it?

Not so fast.

The appreciation isn't so stiff if you pay in euros. Remember, the euro has appreciated about 25 percent against the dollar over the same period. As a consequence, our real estate (and Mexican oceanfront real estate priced in dollars) looks a lot less expensive to Europeans than it does to us. Europeans, Asians and Canadians could buy a lot of the inventory. Lots of Brits and Germans are here.

Another thing to remember is that Mexico isn't blessed with our creative financing. Indeed, home mortgages barely exist. Most homes are purchased for cash. So if speculators have bought houses and condos in Mexico, they're probably well-financed speculators compared to the folks who used Liar Loans to borrow their way to bankruptcy in America. Here, property owners are likely to hang tough, waiting for a better market. There will be fewer distress sales.

Maybe.

But there is a reason all those billboards are in English. Americans are the primary buyers in Puerto Vallarta. And the majority of them are from California. I would not be surprised if many of the condos sold in the last few years were purchased with cash from refinancing a house in California. As a result, the supply of houses for sale in PV may increase significantly in the next year or so as Californians look for a source of cash and find it in Mexico.

Bottom line? It won't have the stark drama of places like Fort Myers, Fla., or Stockton, Calif. But Puerto Vallarta looks like a long-term opportunity for buyers and renters alike.

ON THE WEB

• VirtualVallarta, the online publication: www.virtualvallarta.com

• Rentals in the Marina Vallarta area. Check Realtor Bill Taylor's newsletter. It's relentlessly upbeat about PV real estate, but it has interesting information: www.tristarrentals.com

• Earlier columns on living and retiring in Mexico: http://assetbuilder.com/tags/Retire+in+Mexico_3F00_/default.aspx

n Gringos in Paradise (now a $4.99 bargain book on Amazon): www.amazon.com/Gringos-Paradise-American-Retirement-Seaside/dp/B000WPKLUW/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1207683079&sr=8-1

• Amerimed-Hospitals: www.amerimed-hospitals.com

Questions about personal finance and investments may be sent by e-mail to scott@scottburns.com or by fax to 505-424-0938. Please visit my Web site at www.scottburns.com to comment on any of my articles, find referenced Web links or discuss personal finance topics on my forums. Questions of general interest will be answered in future columns and on my Web site.

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