Luxury repricing leaves New York a value opportunity

Making sense of the latest trends in property and economics from around the globe
Written By:
Liam Bailey, Knight Frank
4 minutes to read

Joe Biden is out of the US presidential race. Analysts are broadly certain that this means more uncertainty. The consequences beyond that are unclear.

The outlook for the housing market, then, is little changed, though that's not to say the results of the election won't matter. Stability is important for people making large financial decisions, whichever way the vote goes. A Donald Trump administration that implements tariffs and tax cuts is thought to be inflationary, but we're still four months out from the vote. There's a lot we don't know.

Inflation and interest rates dominate the outlook for the housing market. Mortgage rates are hovering around the 7% level, which continues to limit the willingness of existing owners to transact. This market inertia has affected inventory levels, which are a third below the five-year average nationally and, in markets like New York, down by more than 50%.

I cover the key US markets in more detail in a new insight report, out this morning. The squeeze on available stock has driven prices back up after they fell during late 2022 and into 2023. With prices at record highs, affordability is tight in most mainstream markets. However, with the economy continuing to expand rapidly and job growth and wage growth above trend, there appears to be room for a further uptick in prices.

A value opportunity

Luxury US housing markets have generally seen considerable outperformance over the past four years. Prime hotspots in Florida have experienced price growth at more than double the national average. Prices in Palm Beach, for example, are up by 113% since Q1 2020.

This repricing process has extended from Palm Beach and Miami to key hubs in Texas, such as Dallas and Austin, as well as Aspen in Colorado, where surging demand has pushed prices sharply higher in recent years. While Californian prime markets lagged, both Orange County and Los Angeles still saw growth well above the average during this period. The latest data points to more mixed price growth, with Florida’s hubs seeing slower growth than key Californian markets over the past 12 months. Austin has seen prices decline.

The key outlier has been prime New York, where prices have fallen 3.3% over the past four years, following an inventory overhang that weighed on the market during 2020 and 2021, and the city missing out on the second home market boom through 2022. However, with New York listings increasing by 6.5% over the past 12 months and prices down more than 5% since early 2023 for key international buyer groups, the city is beginning to look like a buying opportunity.

British buyers are among these groups. Adjusting for currency movements, prime New York values have declined 5.6% since January 2023. Sterling is on a winning run that analysts expect to continue, adding further fuel to this trade. The pound has been the best-performing major currency this year, climbing 1.7% against the dollar and nearly 3% against the euro.

Tax and spend

Stubbornly high inflation and political stability have fuelled gains in sterling. The Labour party has the wind in its sails, but figures showing blowout government borrowing in June illustrates the challenge that lies ahead.

Public sector net borrowing hit £14.5 billion last month, far higher than the £11.5 billion that economists had been expecting. "A combination of high levels of spending and weak growth prospects will present uncomfortable choices – deciding between even more borrowing or substantially raising taxes if spending levels are to be maintained," KPMG senior economist Dennis Tatarkov tells Reuters.

Indeed, these figures pour some cold water on any slim hopes of giveaways during the budget scheduled for the autumn. Boosting investment will need to come via relatively cost neutral policies, so there is almost certainly more to come in the way of planning reforms to boost housebuilding and infrastructure development.

GDP growth would need to be around 2.6% every fiscal year from 2025-26 if Labour is to stabilise public debt by 2028-29 without extra tax rises or spending cuts, according to IMF staff estimates provided to the FT today.

In other news...

Has the 'Summer of Sport' fuelled a retail spending bonanza? Stephen Springham has the answer.

Elsewhere - ECB surveys signal September cut as signs of easing inflation mount (FT).