When Sotheby’s International Realty published its 2024 Mid-Year Luxury Outlook in July 2024, two topics were at the forefront of the year’s agenda: whether a long-awaited reduction in U.S. interest rates would occur and what impact the many elections around the world would have on property markets. As the year came to a close, both of those questions had been answered.
On September 18, 2024, the U.S. Federal Reserve, the country’s central bank, cut interest rates by half a percentage point to 4.75% to 5%, the first reduction since March 2020 and down from a 20-year high of 5.25% to 5.50%. The Fed made a further quarter-point reduction in both November and December 2024, with only a further two cuts anticipated in 2025. However, Jerome Powell, the central bank’s chair, suggested during the announcement of these changes—the first of which took place on the heels of the U.S. Presidential election—that policymakers would be watching incoming economic data closely, as a new Presidential administration takes power in January 2025, before making any future adjustments.
The key indicator that will affect any further decisions the Fed makes on interest rates is inflation. When it made its first cut in September 2024, inflation was at 2.4%, nearing the Fed’s 2% benchmark for price stability, down from a 20-year high of 9.1% in June 2022, according to the U.S. Bureau of Labor. Following the U.S. Presidential election, and the anticipation of tariffs promised by the incoming administration in 2025, inflation began to rise to 2.7% in November 2024, according to the Bureau of Labor Statistics, and could continue to change in the coming year.
“REDUCING POLICY RESTRAINT TOO FAST OR TOO MUCH COULD HINDER PROGRESS ON INFLATION.”
-Jerome Powell, Chairman, U.S. Federal Reserve System
In turn, the Fed presented a cautious approach to any further interest rate cuts. “We know that reducing policy restraint too fast or too much could hinder progress on inflation,” Powell said during a press conference following the Fed’s rate cut in December 2024. “At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will assess incoming data, the evolving outlook, and the balance of risks. We’re not on any preset course.” Powell added that, despite expectation that inflation will be higher in 2025, the Fed is on track to continue to cut interests rates. “I think the actual cuts that we make next year will not be because of anything we wrote down today,” he said. “We’re going to react to data.”
Changes in interest rates have a direct effect on mortgage rates. Anticipating the Fed’s cuts, mortgage rates had started to fall in August 2024 to an average of 6.7%, down from a 20-year high of 7.79% in October 2023. But with lowered expectations about future cuts from the Fed and concerns about inflation, mortgage rates also slowed with the Mortgage Bankers Association (MBA) adjusting its expectations to range between 6.4% and 6.6% in 2025, according to a November 2024 report from Housing Wire. Fannie Mae also revised its projections to 6.4% in 2025 and above 6% in 2026.
Mortgage rates would be further affected if the incoming U.S. president revives efforts to reprivatize the country’s two largest mortgage guarantors, Fannie Mae and Freddie Mac, which were taken under government conservatorship following the 2008 housing crisis, according to an early December 2024 report from CNN. “The law says they are eventually to be privatized,” Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania, told CNN. “But the stakes are very, very high as to how this is carried out.” One way to mitigate the market swings that could occur would be for the government to charge the companies a fee for the guarantee of a bailout in a future crisis.
Meanwhile, the impact of the Fed’s interest rate decision also started to ripple out globally. While rates in the U.K. had dropped from a 16-year average high of 5.25% in June 2024 to 4.75% in November 2024, Bank of England policymakers told the BBC that any future rate cuts would likely be more gradual since inflation concerns persisted and the newly installed Labour government’s budget and tax plans would likely increase consumer prices.
Meanwhile, the People’s Bank of China instructed the country’s commercial banks to lower mortgage rates for existing home loans by at least 30 basis points below the loan prime rate. The one-year rate was set at 3.35%, the five-year rate at 3.85%.
Political Changes
The impact of many national elections was still playing out as this report was being compiled. According to Reuters and The Economist, about half of the world’s voting-age population—in nearly 80 countries, collectively accounting for more than 60% of global GDP—were eligible to participate in elections in 2024.
The most closely watched of these was in the U.S., the world’s largest economy and third-largest nation by population, which elected its next president in November. The Republican Party achieved a decisive victory in the election, winning the presidency and securing a majority in both houses of Congress. The outcome led to a surge in the U.S. stock market according to a report in The New York Times on November 6, 2024—the day after the election—and strengthened the value of the American dollar against the currency of major trading partners, including Japan, Mexico and China, due to the proposed tariffs the incoming administration has promised to impose against foreign goods. According to analysts cited by the The New York Times, the incoming Republican president’s economic platform is expected to bolster growth but also raise inflation, which could lead to higher interest rates over time.
Meanwhile, in the U.K., a landslide victory for the Labour Party in July 2024 stimulated the property market, with home prices in September rising at their fastest pace in nearly two years. The average price was up 4.7% from a year before and had risen for the third straight month, according to U.K. lender Halifax. However, a projected increase in taxes on the country’s wealthy has led real estate agents in the luxury sector to seek out U.S. buyers for their high-end properties, according to Bloomberg.
And in India, the incumbent Bharatiya Janata Party (BJP) held onto power but did not win an outright majority, leading to a coalition government with the Telugu Desam Party and Janata Dal (United). The BJP’s tepid victory has not adversely affected the country’s property markets, however, with a September 2024 Reuters poll of housing experts finding that property prices in India were expected to rise 7.75% in 2024, nearly double 2023’s 4.3% growth, mainly driven by demand for luxury properties. ■
