Five Factors That Could Make or Break Housing Markets in 2025
We’ve already seen the power of falling mortgage rates, tax-friendly policies and a strong stock market in driving home purchases
Much is poised to change across the world in 2025, with new and re-elected world leaders bringing policy ideas to the fore that will trickle into many aspects of life, not least housing markets.
All eyes are also on central banks across the globe and their movements on interest rates, and on equity markets, which are projected to perform with vigor. Both will have an outsized impact on real estate in the U.S. and abroad—with a robust stock market greatly benefiting the luxury sector. Most of the action will hinge on when and if those expectations come to pass and where.
“There are more rate cuts to come next year, which is good, but until those rate cuts happen, I think … there isn’t a huge amount of room for price growth right now,” Liam Bailey, London-based global head of research for Knight Frank, said. “You’re kind of waiting for cuts to come through in the new year, and that will unlock the market in a lot of locations.”
Meanwhile, tax policies will continue to play an important role in where wealthy buyers want to live, with countries with favorable regimes benefiting. (Just look to the United Arab Emirates, particularly Dubai.)
And not least, with the continued transfer of wealth from the silent generation and baby boomers to their millennial and Gen Z family members, the whims and wills of the younger generations will begin to reshape the demands put on luxury real estate across the world.
These five factors will have the biggest effect on global luxury residential real estate across the world in 2025.
Interest Rates
The year ahead will likely see a continued easing of interest rates from central banks around the world, economists predict. It means that mortgage rates are likely to come down some as well, unlocking buying and selling in markets across the globe.
Paul Tostevin, head of Savills World Research, said that with inflation broadly back to target and central banks more confident—which underpinned rate cuts at the end of 2024—more cuts are likely ahead for 2025. Tostevin anticipates a rate cut each quarter, with the European Central Bank perhaps being a little more dogged.
Earlier this month, U.S. Fed officials forecast their target rate at 3.9% by the end of 2025, with further cuts anticipated for 2026. Those figures are slightly higher than they previously anticipated, and Fed officials left open the possibility that it may not cut rates at all next year in light of President-elect Donald Trump’s planned tariffs, which could reignite inflation.
“We’re not going back to those very low, pre-pandemic interest rates,” Tostevin said, but he predicts any lowering will spur an increase in real estate transactions after a hot period for rentals. Savills tracked a 2.2% global increase in prime rents in the first half of 2024 as potential buyers sat back and waited for more housing stock or better rates.
Mauricio Umansky, founder and CEO of the Agency, based in Los Angeles, forecasted more sales of luxury real estate in 2025. He said the combination of pent-up demand from buyers sidelined by a lack of properties, an easing in mortgage rates, and luxury home pricing coming back down to 2019 levels will make buyers active in the market again.
Equity Markets
After a year that bucked expectations, financial analysts are predicting another strong year of growth for equity markets. Goldman Sachs and Morgan Stanley forecast the S&P 500 could hit 6,500 by the end of 2025.
“The equity market obviously has had a great year, and it’s been a great source of wealth creation,” said Jonathan Woloshin, senior real estate strategist in UBS’s chief investment office.id. “If there is a significant pullback in the equity markets, could that affect luxury real estate? The answer is yes.”
Woloshin pointed out that in the U.S., certain luxury markets like Aspen, Colorado; Park City, Utah; and Jackson Hole, Wyoming, which are magnets for wealth, will remain well insulated from any downturn.
The wildcard at large, he said, is to what extent Trump’s proposals that touch on housing become policy.
Ability to Do Business
Real estate in cities across the world with favorable tax policies are reaching new heights and are expected to continue luring high-net-worth buyers in 2025.
“Still really important for people who are looking to buy homes, often their second or third homes, they want a place that they can operate globally from and operate their business interests,” Tostevin said, highlighting good connectivity and the ability to hire skilled workers as major draws.
Just look to Dubai, where real estate values have risen nearly 20% over the past year. In the third quarter of 2024, they surpassed their 2014 peak, according to Knight Frank’s Dubai residential market review.
“Swiss, Germans, Scandinavians, Brits, all the millionaires and centimillionaires, are relocating to set up their business here with significant tax advantages,” Phil Sheridan, CEO of Berkshire Hathaway Gulf Properties, told Mansion Global in November.
In the U.A.E., there is no personal income tax and a 9% corporate tax rate, which pales in comparison to places like the U.K., where companies with profits over £250,000 are taxed at 25%. In the U.S., the rate is currently a flat 21% though that could see a shift in the years to come as Republicans assume control of the White House and Congress in January.
Another appealing perk for property buyers, the U.A.E. has no income tax on rental incomes or capital gains tax.
Panama City is another rising global destination favored for business, thanks to no income tax on foreign-earned income, no inheritance tax, and incentives like its Qualified Investor Visa program, which grants individuals permanent residency through the purchase of real estate or an investment in the stock market, according to the Agency.
These locales might be beneficiaries as the U.K. phases out its non-domicile rule, which exempted certain British citizens from large tax liabilities from earnings made outside the country. It’s scheduled to end in April.
“There’s been some changes to wealth taxation in the U.K. this year and there’s massive speculation about whether wealthy people are leaving the U.K. or not,” Bailey of Knight Frank said, citing Switzerland, Monaco, Italy, Dubai and Portugal as possible beneficiaries.
Generational Transfer of Wealth
Over the next decade, some $90 trillion is poised to change hands in the U.S. from the silent and baby-boomer generations to millennials and Gen Zers, handing the reins to the younger generations to make decisions about where and how they spend, according to Knight Frank’s 2024 Wealth report.
Ryan Rosegarten, a senior wealth strategy associate at UBS, said that with this transfer in wealth, “the likelihood is there is a lot of real estate that will be passing hands.”
It remains to be seen how wealthy millennials and Gen Zers will stack up to their earlier counterparts when it comes to global property ownership, but Umansky has a few predictions.
“I think it’ll create more transactions,” he said. We’re going to start seeing “the kids sell their parents’ houses, and then they will buy something new for themselves.” That doesn’t mean that generational properties, like a chateau in France that’s been in the family for 200 years, will sell, “but their apartment in Paris will.”
Umansky said that he’s starting to see younger generations move away from renting for convenience, a pandemic-era trend, and move toward holding a small portfolio of homes.
Bailey said it’s just too early to tell how it will shake out in the year and years ahead.
“Lots of wealthy families might have two, three, four homes. Is that something which the next generation will want to continue, or do people find that a little bit complicated in terms of their lifestyle?” he asked, adding that he has seen anecdotal evidence that there’s some reluctance from younger people to take on that kind of complexity of ownership and management of real estate portfolios.
Tostevin predicts that some of the culture shifts we’ve seen, like the growing presence of executive nomads who are opting into traditional second-home destinations as year-round homes, will continue to have a material impact on places like the Caribbean and Mediterranean.
“We’re seeing a boost to the property markets and, of course, digital-nomad visas being a driver as well,” he said.
Climate Resiliency
One thing’s certain: Millennials and Gen Zers prioritize spending differently than the earlier generations, putting a premium on climate and meaningful expenditures.
Some 66% of millennials focus on investing with purpose, compared with 49% for Gen X, and Gen Z might be taking it a step further, Ben Whattam, co-founder of London-based research and events platform Modern Affluence Exchange, told Knight Frank in its latest Wealth Report.
“Climate change is the No. 1 concern for Gen Z, and whether they’re rich or just affluent, they see it as their generational responsibility to fix what has been broken by their elders,” Whattam said. “This issue is fundamentally changing consumer behaviors, particularly for those with wealth.”
Tracy McLaughlin, an agent with the Agency in Marin County, California, and Aspen, Colorado, said in the Agency’s 2025 wealth report that as younger buyers become wealthier, their climate-conscious focus will manifest as demand for energy-efficient homes and solar power.
This climate awareness will also likely influence where the younger generations are buying homes in the year and years to come.
“Why would I buy in Miami? It’s going to be underwater in 30 years,” Umansky postulated. “We’re definitely seeing Denver, Boulder being a very sought-after area” and a location forecast to weather the effects of climate change with more gusto than coastal destinations, where older Americans flock to.
Also in the U.S., real estate in Cleveland, Ohio, has doubled in value over the past few years, according to the Agency, with the area rated in 2023 by National Geographic as one of the most resilient cities weathering climate change.
In 2025, as millennials and Gen Zers continue to become a larger share of homeowners, we will likely continue to see more climate-resilient destinations grow in popularity, and with them the demand for more energy-efficient homes and green-home infrastructure like solar panels.
Via Mansion Global
Browse our latest news and updates below