Residential Real Estate News
Luxury Housing Markets in U.S. Poised to Outperform in 2025
Foreign buyers set to enjoy savings due to weaker U.S. dollar
According to international property consultancy Knight Frank, the shift to lower interest rates is expected to boost activity, with prime housing markets across the U.S. poised to benefit ahead of the broader housing market recovery.
Although cash buyers are more prevalent, high borrowing costs have dampened activity in luxury markets as well. Many prime buyers have wealth tied up in other asset classes that have been affected by rising rates, adding to uncertainty, which is further compounded by the upcoming November election. Nationwide, only 29 properties sold for $50 million or more in 2023, a 41% drop from two years ago, based on Miller Samuel data.
"You look at that [Fed repricing] and think, 'Wow, housing should skyrocket,' but you have to remember that mortgage rates are still double what they were before the pandemic," says Jonathan Miller, president and CEO of Miller Samuel. "The first impact will be an increase in sales activity, which will be noticeable, but we're not going to see a frenzied boom."
FLORIDA
New Yorkers have driven significant property market activity, but much of it has flowed into markets outside of New York. For example, the influx of New Yorkers helped Florida become the fastest-growing state in 2022, the first time it achieved this since 1957. Net population growth of nearly 250,000 has fueled unprecedented property value increases in many of the state's luxury hot spots. In Palm Beach, average prices have surged 214% over five years, according to Miller Samuel/Douglas Elliman.
While growth has slowed as inventory rises and buyers resist record-high prices, sales volumes dropped 4.5% in the six months through Q2 compared to the same period a year earlier, with average prices dipping slightly by 0.1%. This trend reflects less of a reversal of the pandemic boom and more of a stabilization in the enlarged luxury market. Even though inventory is rising, it may take years to meet demand. Miami, once primarily a Latin American business hub, now rivals established financial centers like Chicago. A prime example is Citadel, a $38 billion hedge fund that relocated from Chicago to Miami in 2022, sparking what's been called the "Citadel effect."
NEW YORK CITY
Manhattan is one of the few markets where inventory is increasing, with over 8,000 apartments currently for sale, compared to the 10-year average of around 7,000. This rise in inventory has stabilized sales volumes, which are down only 0.7% in the first three quarters of 2024 compared to the same period a year earlier. Meanwhile, prices have remained stable, with average values decreasing just 1.1% over the same timeframe, according to Miller Samuel/Douglas Elliman.
Despite a subdued market, higher-value properties have outperformed as buyers used cash to avoid mortgage rates over 6%. In Q1, 68% of Manhattan transactions were cash-funded, a record high, up from the long-term average of 50%. Sales volumes are expected to pick up after the election, says Miller, who has analyzed data from the past three decades for post-election trends. "From July to election day, there's a slowdown, but immediately afterward, there's a release," he says. "It doesn't seem to affect prices, just adds another factor for buyers to consider, and then the market catches up over the next three or four months."
ASPEN
Supply-demand imbalances are likely to persist in most markets that saw significant price increases during the pandemic. Between Q1 2020 and Q3 2023, Aspen experienced a 67.3% price surge, becoming one of the prime markets with notable recent price growth.
Aspen's market can be divided into three tiers, each driven by different factors, says Riley Warwick, co-founder of the Aspen-based Saslove & Warwick team at Douglas Elliman. Like Miami, Aspen's growing population suggests the market for properties under $10 million may face an undersupply for years. For homes priced between $10 million and $25 million, sales have slowed as buyers seek value after recent price spikes. Meanwhile, at $25 million and above, inventory remains scarce for near-irreplaceable homes. Limited land and lengthy building processes make buyers willing to pay record prices. "It can take a year to design a home, another year to secure permits, and then three to four years to build," says Warwick. "People are willing to pay for instant gratification."
OTHER U.S. MARKETS
Other emerging markets don't face the same land constraints. Developers in Dallas and Austin are increasing supply to accommodate the influx of new residents attracted by favorable tax incentives. In Dallas, 40,000 home permits are issued annually, but this still falls short of the demand from 150,000 to 160,000 new residents each year, according to Concho Minck, executive manager of sales at Douglas Elliman in Dallas Fort Worth.
Luxury developers in Dallas are now constructing homes more typically found in New York or Los Angeles to appeal to the city's growing wealthy population. Both Four Seasons and Rosewood have branded residential developments in progress. "This is going to be a significant shift as the market hasn't seen this level of luxury product before," says Lynda Villarreal, a broker at Douglas Elliman in Dallas Fort Worth. Developers hope to replicate their success in Los Angeles, where full-service and branded residences have thrived in an otherwise slow market, according to Cory Weiss of Douglas Elliman in LA.
