WHAT IS IN STORE FOR THE WORLD’S LUXURY REAL ESTATE HUBS
02/01/2024
Myriad uncertainties, from mortgage rates to national elections and the stock market, will have more impact than in typical years in major metropolitan housing markets from San Francisco to Sydney in 2024.
In London, “the biggest risks to the prime market are likely to be political rather than economic,” said Tom Bill, head of U.K. residential research at Knight Frank. “If the election occurs in the latter half of 2024, then we may see an uptick in prime sales. Prime buyers are less reliant on mortgages, but they are influenced by uncertainty.”
That seems to be the running trend across major luxury hubs, where government policy and geopolitical events will drive high-end home-buying trends, according to real estate professionals who spoke to Mansion Global about what may be in the cards for 2024.
For instance, a similar story may play out across the Atlantic in New York, where declining mortgage rates are expected to “inspire more buyers and more sellers” to get into the market, said Bess Freedman, CEO of Brown Harris Stevens. But “we also know that ’24 is going to be an election year. That creates a bit of uncertainty—people want to wait and see what’s going to happen.”
In the startup hub of San Francisco, Joel Goodrich, director of the estates division of Coldwell Banker Global Luxury, is “neutral to bullish” in his outlook for the city in 2024.
“The Bay Area remains the tech and AI capital of the world, with the vast majority of top AI companies in the world located right here,” Goodrich said. “I believe this could lead to another big boom in the second part of the decade. The question is, how soon will it start?”
NEW YORK CITY
Interest rates and elections are likely to be two of the major factors impacting New York City’s real estate market next year, according to Freedman.
U.S. mortgage rates were on a tear in 2023, peaking in October when the typical 30-year rate reached close to 8%, a two-decade high. “Next year we’ll probably see a cut in rates,” she said. “And if we get that, it’ll inspire more buyers and more sellers—that would be a positive”.
At the very top end, “even in more challenging times, we see very large sales happen, but we see less of them. People are just a bit more risk-averse,” according to Freedman. “I would say ’24 is going to continue to be a bit austere”.
Ultimately, “I think next year is going to be sort of a reset of a year,” Freedman said.
SAN FRANCISCO
If anything, San Francisco is coming off a reset year. In 2023, San Francisco served as the poster child for many of America’s woes, including crime, homelessness and a slowing housing market. The condo market in particular logged a 40% decrease in sales compared to 2022.
Still, Goodrich, of Coldwell Banker Global Luxury, remains fairly optimistic in his outlook for next year, in part because the NASDAQ is doing extremely well, and San Francisco’s luxury market is somewhat correlated to it. Though he Goodrich acknowledges there are plenty of economic and geopolitical crosscurrents that could affect that scenario either way.
“The bright spot in San Francisco is single-family homes in the historic residential neighborhoods in the $2 million to $5 million range, which has always been more immune to downturns,” Goodrich said. “We are seeing much less inventory and stronger sales in that submarket than other segments in the market”.
Goodrich thinks neighborhoods such as South Beach/SoMa, Mission Bay and Dogpatch could have a strong rebound if more employees return to offices.
“I’m actually bullish on the return to office,” he said. “A lot of my tech CEO clients as well as 20-something founders want their teams in the office every day, as that is the most efficient and creative way to work in a lot of situations. This boosts the value of cities and high-rises.”
Two new developments, Maison Pacific and the Belvedere, are anticipated this year in the historic areas of Russian Hill and Pacific Heights.
“There are definitely plans in the works with several major new residential high-rise proposals, so there could potentially be another construction boom in the second part of the decade,” Goodrich said.
MIAMI
In contrast to subdued activity in San Francisco, “Miami is just on fire,” according to Ivan Chorney of the Ivan and Mike Team at Compass.
And it’s true: Miami has been a standout city in the U.S., with prices rising roughly 1% annually, according to Knight Frank’s third-quarter prime cities report—making it the only U.S. city in the quarterly index to see luxury home prices rise year over year.
Demand remains strong, and many buyers are looking to buy off plans to get just the right unit. “If it wasn’t for pre-construction, we’d have very little to sell,” Chorney said.
Meanwhile, those in the market for a waterfront mansion can still expect to pay top dollar next year, according to Filippo Incorvaia, CEO of FI Real Estate. “Due to the scarcity in the market, when it comes to single-family residences, prices will stay unchanged,” he said. In 2024, they will “start slowly increasing as we see more buyers joining the race. New development pricing will keep setting records.”
Though the market has normalized from the white-hot peak of 2021-22, with sellers adjusting their asks and buyers accepting the new normal of higher interest rates, Miami is still a strong bet. “Property prices in this market are on an upward trajectory overall and it’s why Miami has continued to outperform the rest of the country,” Incorvaia said.
LOS ANGELES
The Los Angeles housing market is also ready for a reset in 2024 after a bumpy year. Prices were down nearly 2% year over year in the third quarter, but started to rebound in the second half of the year—up 6.7% in the six months ending in September—as interest rates started to fall, according to Knight Frank data.
David Kramer, president of Hilton & Hyland/Luxury Portfolio International, said he and his colleagues saw increased activity toward the end of the year. “There have been some strong sales over the last few months, especially in the upper end.” Some buyers have also indicated that they want to buy “before the market starts the upward turn,” Kramer said.
Falling interest rates are likely to jumpstart both buyers and sellers currently locked into low rates they don’t want to lose. Kramer doesn’t see 2024 as a year for big price growth, although there is “potential for some slight increases.”
As ever, Los Angeles buyers are attracted to hot new projects or amenities. “Creative developers are coming up with new life-enhancement amenities, which will cause more people to sell their older homes and start to look for something newer,” Kramer said.
LONDON
2023 turned out fairly subdued for London’s luxury market, but it’s ending on a better note as the U.K. narrowly avoided going into recession.
With inflation slowing and mortgage rates dropping slightly, the prime market has recorded improved activity levels, but prices are unlikely to rise next year, experts say. 2024 could be another subdued period, one that just ticks along, said Tom Bill, head of U.K. residential research at Knight Frank. Knight Frank has predicted 0% movement in price for the prime central London market next year.
There’s also a U.K. general election due to happen in 2024, and some say it might be earlier than expected, which could cause a pause in the market.
“The biggest risks to the prime market are likely to be political rather than economic. If the election occurs in the latter half of 2024, then we may see an uptick in prime sales. Prime buyers are less reliant on mortgages, but they are influenced by uncertainty,” Bill said.
A change of government represents a higher risk for prime markets in particular, but higher rates of tax around property and wealth has been the global direction of travel for more than a decade, according to Knight Frank’s U.K. house price forecasts for October 2023.
Bill pointed to proposed changes to the U.K.’s favorable taxes for non-domiciled residents, and the proposed removal of tax breaks for private schools, which could lead to increases in school fees, as factors that could affect the market.
Looking beyond 2024, “the prime market did not experience large price increases during the pandemic years, like other parts of the market, so there is potential for steady growth in the coming years,” Bill said. It’s also clear that London remains a choice spot among wealthy international buyers, and that’s unlikely to change anytime soon. “It’s easy to forget that London ticks lots of boxes for overseas buyers such as the language and its schools, but they are the factors that keep the market ticking along,” Bill added.
DUBAI
The luxury housing boom Dubai witnessed in 2023 is on track to continue over the next 12 months.
This year saw the United Arab Emirates city “emerging as the world’s most important real estate market for high-value transactions,” said Oriol Font, CEO of Luxhabitat.
“We expect to see a further consolidation of Dubai as one of the more relevant destinations for high-net-worth individuals,” Font said. “In the past, most of the residents were moving to Dubai for work or tax reasons. Nowadays, those are not the only reasons as a significant and growing number of high-net-worth individuals move to Dubai because of the lifestyle the city offers, which doesn’t have any comparable, especially in the region”.
In the last couple of years, Dubai’s property price growth has made headlines, “which is an outstanding performance that we don’t expect to last for much longer,” he added. “Most probably either in 2024 or 2025 the market will see those growth levels to moderate or even a certain price correction in certain areas or product types”.
Despite a year and half of almost continuous interest rate rises, Sydney’s dwelling values actually increased 10.2% in the 12 months to Dec, 1.
Luxury real estate led the charge throughout 2023, however data from CoreLogic now shows affluent buyers are pulling in the reins. Slower growth conditions across Sydney’s upper quartile—the top 25% of housing values, around A$2.1 million (US$1.44 million) and higher—have recorded the lowest rate of growth on a monthly and rolling quarterly basis, according to Tim Lawless, chief economist at CoreLogic.
“That upper quartile tends to lead the cycle, and we’re clearly seeing that again. There was an inflection point where value growth in that sector was leading Sydney’s upswing from early 2023, but it’s now showing the most noticeable slowdown across both houses and units,” said Lawless. “Sydney’s upper-quartile house values rose by 4.9% quarter on quarter over the three months ending in July. That’s now slowed to 3%,” he said.
Traditionally, the summer quarter, which Australia entered on Dec. 1, sets the scene for the calendar year ahead, signaling a slower start to 2024 than 2023 for luxury homes.
“I wouldn’t be surprised if there’s a further diminishment in growth, maybe even moving to some level of decline in price. What happens in the market next year will be dependent on interest rates,” Lawless explained. The central bank had raised the benchmark rate to 4.35% as of mid-December, which many regard as the peak.
“Potentially, we’ll see interest rates coming down through the second half of 2024. Although the timing of that is still highly uncertain because it’ll depend on inflation numbers,” Lawless said.
As high-end housing values slow—or potentially fall—in Sydney, Lawless suggested a temporary window could be about to open.
“There’ll probably be more opportunities if luxury values dip below this most recent flurry of growth,” he said. “If I’m right about rates coming down late next year, that might mean the best opportunities to buy would be in the first half of the year to take advantage of less competition”.
