Trump 2.0 clouds the inflation outlook
Making sense of the latest trends in property and economics from around the globe
5 minutes to read
Prime housing markets generally returned to growth in 2024 following a broad contraction in 2023.
Rates are now on the way down, albeit slowly, so we should see more growth in property values in 2025, but some of the eye-popping numbers we've seen since the pandemic appear well and truly behind us. Several markets are at the limits of affordability and inventory levels are now rising, leaving one or two markets at risk of declines.
The year ahead looks like it will be a sober one, with inflation hovering a little above target and central banks treading carefully. Of course, incoming President Trump will take the helm in January and, if he makes good on his threats, will slap 25% tariffs on Canada and Mexico, and an additional 10% on China. The impact of that on both the real economies and housing markets is hard to predict. The range of probabilities, according to Oxford Economics, span a fairly localised drag on growth in the North American region, to the imperilling of American exceptionalism itself - at least temporarily.
A quiet year? We'll see.
Prime forecasts
You can find our prime residential house price forecasts for global cities here. Dubai will lead through 2025 with growth of 5% due to limited supply and a rapidly expanding population. Listings in prime neighbourhoods have fallen by 52% over the past 12 months. The shortage is even more pronounced in the US$10 million+ segment, where available properties have dropped by 65%.
New York and Geneva come in joint second with growth of 3%. Following five years of sub-par growth, prime New York has regained its confidence, and a truly positive market expansion—absent since 2019—is set to return in 2025. Inventory levels remain sharply below the five-year average (-54%), which will help support pricing as the selling season gathers pace in the spring. Geneva’s 3% growth forecast reflects its continued status as a safe haven for global elites. With a strong currency, low taxes, and an excellent quality of life, the city remains a favourite among the very wealthy. A planned income tax cut in 2025 in the Canton of Geneva will further bolster its appeal.
London and Paris complete the top five, with respective growth of 2.5% and 2%. Despite political instability, Paris is drawing increasing interest from UK and US buyers, driven by a weak euro. Buyers are eager to move forward, having put their plans on hold for several years, following the 2024 Olympics and France’s general election. In London, we expect a slower recovery in the short term as the non dom tax status ends and stamp duty for second homes is hiked. However, the relative value since the last peak, greater political certainty, a high presence of cash buyers, and rising levels of global wealth mean we expect price growth to strengthen over the next five years. See the piece, linked above, for more.
Trump and the Fed
Minutes from both the Federal Reserve and the Bank of England released alongside their respective rate decisions suggest policymakers are now less confident that inflation remains on track back to target - uncertainties that have clearly been exacerbated by loose fiscal policy in the UK and the prospect of looser fiscal policy under Trump.
Even as they executed the expected 25 basis point cut yesterday, Fed officials said they now expect to cut rates by just 50 basis points next year, compared to the full percentage point they were expecting just three months ago.
This makes sense. Fed chair Jerome Powell said that some members of his committee did start "incorporating highly conditional estimates" of policy into their forecasts, and Trump likes to cut taxes. Stifling immigration could raise wages. Consensus view among economists appears to be that tariffs will be somewhat inflationary in the US and potentially deflationary in Europe.
This will continue to stifle US housing market activity. Transactions have hovered at about three quarters of their pandemic level for the past two years as borrowers balk at the prospect of mortgage rates north of 6%.
A dovish cut?
The BoE's decision to hold the base rate at 4.75% was widely expected, but the fact that three of the nine members of the Monetary Policy Committee wanted to cut again was a surprise. Those members cited sluggish demand and a weakening labour market, while the six want to see more data that will "clarify the potential trade-off between more persistent inflationary pressures and greater weakness in output and employment."
Will that clarity arrive by the February meeting? Interest rate futures put the chance of a February cut at about 45%, which looks about right, BoE Governor Andrew Bailey told reporters: "I think the path is downward but I really would caution that at this stage, with the amount of uncertainty, we can't tell you by how much or when particular moves are going to take place... the world is too uncertain."
Alpine homes
Alpine property values have climbed another 3% in the most recent twelve months. While this is down from the pandemic peak, growth remains above long-run trend rates.
In a new episode of Intelligence Talks, Anna Ward delves into the results of our new Knight Frank Alpine Property Report. She is joined by our head of European residential research Kate Everett-Allen, and partner Alex Koch de Gooreynd. They cover the key drivers of demand, from declining mortgage rates, tax changes and an increase in year-round amenities, plus why Swiss resorts are outperforming the French. Finally, where would our panel spend their own cash?
Listen here, or wherever you get your podcasts.
In other news...
Sadiq Khan’s London housing fund may need bailout, auditors warn (FT), and finally, Soho House private members club receives new takeover offer (Times).