Animal spirits return to Manhattan

Animal spirits are stirring in New York City. Quarterly earnings from banking giants Goldman Sachs, JP Morgan Chase and Citi came in well above analysts' expectations yesterday – revenue from investment banking and trading surged by at least 12% at all three companies.

M&A is booming. Global companies struck $1.26 trillion of deals in the third quarter, up 40% year-on-year and capping one of the busiest quarters in history. Equity markets had been on a six-month rally until late last week, when President Donald Trump launched his latest trade salvo with China – a useful reminder of just how fragile all this could prove to be. Still, history shows that once optimism begins to take hold in financial markets, momentum can build quickly. British economist John Maynard Keynes coined the term "animal spirits" in 1936 to describe investors’ tendency to favour action over inaction, often at the expense of hard evidence.

Exuberance on Wall Street often touches the top end of the property market first, and this time is no different. New York regained the crown as the world's largest super-prime market by value in the second quarter for the first time since 2021, Knight Frank's Global Super-Prime Intelligence report revealed this week. Deals in excess of US$10 million, our super-prime benchmark, totalled $2.9 billion, beating Dubai ($2.6bn), Los Angeles ($1.6 billion) and Hong Kong ($1 billion).

New York's resurgence, underpinned by demand for trophy condominiums and prime townhouse resales, is part of a much broader recovery in global super-prime activity. There were 590 US$10 million-plus transactions in Q2, 19% higher than the 497 deals in the same quarter a year earlier. Aggregate value climbed even faster, reaching $11.8 billion for the quarter, up 33% year-on-year from $8.9 billion.

Pent-up demand

Dubai continues to lead the super-prime market by transaction volume, recording 143 sales in Q2 – ahead of New York’s 120 and Los Angeles’s 73. Still, New York is gaining ground and could yet overtake Dubai by year-end.

Los Angeles rebounded sharply from Q1, posting its highest quarterly sales volume since Q1 2021, driven by a surge in top-end single-family home transactions in Beverly Hills and Malibu. Hong Kong also delivered a notable quarter, with both deal flow and values rising strongly quarter-on-quarter – suggesting pent-up demand is still being released despite persistent macroeconomic headwinds.

London recorded 45 deals ($0.9 billion), down 13% on the same period last year as tax changes continued to temper activity. Nonetheless, Q2 performance outpaced Q1, indicating that some buyers are taking advantage of lower pricing in the market. See the report for more. Tom Bill has an update on the UK's prime country market here.

Stickier inflation

Conditions in the world's mainstream housing markets are more muted. The pattern we flagged in early 2025 – modest growth underpinned by rate cuts – remains intact, though rises are measured rather than dramatic.

Our Prime Global House Price Index climbed 2.7% in the year through Q2 2025. Markets experiencing deeper easing cycles continue to show the strongest support, while those contending with stickier inflation and more gradual policy adjustments are recovering more slowly. Against this backdrop, we expect a steady, albeit still fragile, uplift in pricing through the second half, contingent on further incremental policy support.

Turkey once again leads our index, recording the strongest nominal annual growth at 32.8%. However, elevated inflation means its real annual growth remains mildly negative at -1.7%, despite the nominal surge. Europe dominates the upper end of the rankings, led by North Macedonia (19.9%), Portugal (18.1%), and Bulgaria (15.5%). Beyond Europe, Colombia (10.0%), India (9.4%), and Japan (7.6%) also post solid annual gains.

At the other end of the table, Mainland China (-6.4%) and Hong Kong SAR (-6.3%) recorded the largest annual declines. Finland (-2.7%), Canada (-1.8%), and Peru (-1.7%) also registered year-on-year falls. Among major advanced economies, the picture is mixed but stabilising: the UK (2.1%), the US (1.9%), and Germany (2.6%) are modestly positive over the year, with quarterly momentum generally subdued but improving in select markets. Overall breadth remains supportive, with roughly 85% of markets posting positive annual growth.

Responding cautiously

Risks to the outlook in the UK provide a good read across for many housing markets in western economies. Inflation touched almost double the Bank of England's target recently, and household expectations of price rises during the months ahead have started to drift higher, causing concern among policymakers at the BoE.

The IMF published forecasts yesterday showing Britain's economy would have the highest inflation in the G7, while admitting that was largely down to temporary factors.
Still, the economic data has pushed swap rates higher and many mortgage lenders have notched up rates in recent weeks. Average mortgage rates have risen for the first time month-on-month since February, Moneyfacts reported this week.

"Lenders have responded cautiously, with some edging rates higher and the overall average ticking up slightly," Simon Gammon of Knight Frank Finance told the BBC. "This is unlikely to mark the start of a sustained rise in borrowing costs, but rather a prolonged plateau while the outlook becomes clearer."

In other news...

Bellway CEO urges UK government to bring back stamp duty relief for first-time buyers (Reuters).