In the first of our series of property predictions for 2019, we look at the Americas.
This year the average home price in the US returned to pre-2006 levels for the first time — but the picture is still very mixed. Some areas badly affected by the downturn are still struggling, while others are recording sales at record high prices. Most of our coverage this year has focused on the Manhattan super-prime market, where luxury apartments have been languishing on the market for months at a time — or else had their prices slashed. This seems unlikely to change in 2019, as a flood of super-prime towers are due to hit the market in the next three years.
But here is what the experts think:
Susan Wachter, professor of real estate and finance at The Wharton School of the University of Pennsylvania:
Last year, the world’s biggest economies were growing in sync. As a result, I predicted that prices would rise — and for the most part they did. I pointed to the need, nonetheless, for a market-by-market analysis and to a market that would struggle in particular — New York, where new supply would drive rents and prices lower, which occurred.
The US will experience a continuing slowdown in 2019 from the rapid price appreciation of the past eight years, across urban markets, with prime real estate in the mega markets of New York, Washington DC and Los Angeles likely to take major hits. Canada’s markets are also likely to see declines with the pullback of foreign investment, mostly from China.
At the same time, Latin America’s political environment and markets present significant uncertainty and even turmoil. Political change in Central America and the major economies of Brazil, Argentina and Mexico, along with the devastation of Venezuela, is driving uncertainty and pushing domestic capital to the US and Europe — with implications for prime residential demand in this part of the Americas.
Liam Bailey, partner, global head of research at Knight Frank:
Across the US, positive economic indicators and strong infrastructure investment are supporting wealth creation, gross national product and prime housing demand.
We expect growth to moderate in several key cities in 2019 as interest rate rises and strong supply influence prime prices. In 2018, the base rate increased from 1.5 per cent to 2.25 per cent and the IMF forecast the US base rate will stand at 2.75 per cent by the end of 2019.
In New York, a large volume of new prime supply, particularly around Midtown, has weakened pricing. We expect prime prices in the city to decline by between 5 and 8 per cent in 2019.
The impact of the changes to federal tax law (SALT — State and Local Taxes), which cap deductions for state, local, and real estate taxes to $10,000 in total, will influence high tax states such as New York and California the most. Payments are due in April 2019.
A recent study by the National Association of Realtors estimated that in 2018 foreign buyers spent over $120bn on US real estate. This flow of inbound capital comes despite the strength of the US dollar, suggesting exposure to the dollar is a pull rather than push factor for many overseas investors and second-home purchasers.
We estimate prime prices in Vancouver will end 2018 around 15 per cent lower as the raft of measures introduced in February (the foreign buyer tax was increased to 20 per cent, a new speculation tax was imposed on vacant homes and the transfer tax increased) have weakened demand. In 2019, we forecast price growth will return to positive growth, reaching 3 per cent as domestic purchasers start to identify buying opportunities.
Paul Tostevin, associate director, Savills world research:
In spite of the Fed’s rate increases, we expect US residential markets to continue to rise in 2019, but there will be exceptions. New York and Miami, the two most internationally invested US cities, are grappling with high supply of new prime stock. In New York, price adjustments may yet stimulate demand in 2019, while a slowdown in Latin American buyer flows into Miami has led developers to postpone projects.
For star performers, look to America’s tech hubs. In San Francisco, Boston and Austin, where tight supply meets strong demand from tech high-earners, prices have all but doubled in a decade and will probably keep on climbing.
As young, globally mobile talent seeks vibrant urban neighbourhoods close to employment, some sub-markets are poised to outperform. The rental markets of Long Island City, for example, are set to see a boost from Amazon’s decision to build a second headquarters there.
The success of the Caribbean, the playground of the northern hemisphere, is closely tied to the markets that feed it. The weak pound will continue to weigh on markets such as Barbados, where British buyers dominate, but the islands of the northern Caribbean, favourites of US dollar buyers, may enjoy sunnier times.
Dan Conn, chief executive of Christie’s International Real Estate:
Last year, Christie’s International Real Estate noted that booming markets would slow because of tightened lending conditions and increased costs via tax policy to foreign buyers as a disincentive measure. That proved true in Canada, as the major hubs are still adjusting to new government policies: in Vancouver, for example, sales of luxury properties decreased year-on-year to October 30. Our affiliate, Faith Wilson, refers to this softening as an excellent time for buyers to shop Vancouver.
We see Canada posting gains in 2019 despite cooling factors, as luxury buyers continue to gravitate towards international safe havens that offer good quality of life. That said, on a relative basis compared with other major global centres of economic activity, it will continue to be a strong market for luxury real estate.
In the US, last year we predicted that a bull market would bolster luxury residential property sales. The tax code overhaul also provided affluent Americans in general with a substantial financial boost, which helped support the market overall. That said, rate rises are clearly affecting pricing, and the elimination of the state and local tax deductions in the US hit sellers further in high-tax states such as New York, New Jersey, Connecticut and California. The federal tax reform is keeping more buyers on the sidelines there until the full impact of the new federal tax becomes clearer and prices find a new equilibrium in 2019.
Low-tax states such as Florida, Wyoming and Nevada fared better, however, as affluent homebuyers look for alternative primary residence locations that limit tax burdens. In Miami, for example, luxury property sales activity is beginning to pick up after several years of decline — sales of $5m condominiums increased by 50 per cent year-on-year to August 31.
The California fires have significantly hit a market I highlighted last year — Malibu. Just as St Barths recovered from the hurricanes and Montecito recovered from the mudslides, I am confident that Malibu will, too, in 2019.
Henry Pryor, high-end buying agent:
While stability and confidence remain in sufficient quantities to maintain liquidity in markets in North America, the US lags Canada by 18 months. Worries that Canadian property was flirting with disaster, with rising debt and defaults, could have tipped the market into recession, but that has been avoided — for now. Concerns do seem to have been overplayed, but some significant issues remain.
After a turbulent couple of years, the US market appears to have topped out, but dark clouds are gathering. As with all markets, there are exceptions, but sales of new homes and permits are down — a traditional store of wealth for many Americans. Americans seem to be concerned about the short-term outlook for property and may have good cause to be.
South America remains a basket case for most international buyers, although diehard fans appear to be gaining in number. I expect it to get worse before it gets better.
Top photograph: Dreamstime