The housing market often takes its lead from the the major businesses in the local market. If employment and compensation is good, housing is helped.

Take Detroit for example. Michigan is one of the most vulnerable housing markets right now as the auto industry has been hemorraging. The decline in housing prices may become excruciatingly painful. [Detroit News].

Less job certainty, few jobs and little or no increases in annual compensation translate into weaker housing markets. No rocket science here. (for that see Los Alamos).

The New York region happens to be one of the bright spots in the national economy over the coming year. Wall Street, one of the major “industries” of the region, had a record year for compensation [BW]. Last year firms payed out $21.5 billion in bonus money and this year, based on year to date figures, is expected to be even better. This is measured in bonus money paid out, which exceeds 50% of total compensation. They are not hiring more than any other sector but compensation per person is rising.

This money finds its way into the housing economy within a few months after the bonuses are announced in December. This may temper some of the weakness being caused by the build-up in inventory but its not the answer to all our housing market issues by a long stretch. For example, condo units available for sale are up 143% and co-ops are up 50% since December 2004 [Curbed].


3 Responses to “Wall Street Bonuses: Housing Market Is Not Rocket Science”

  1. Anonymous says:

    I was under the impression that prior to the impending bonuses of 2006, 2005 was also a record year. However, it didn’t seem to do all that much for housing – maybe in the luxury/ultra luxury area, but not overall. We still had a lousy spring. So I can’t see why that would change this year, with inventory so much higher. Besides, don’t all those rich guys own by now?

  2. WT Economist says:

    New York’s economy is strong, and people are pouring in. In the short run, therefore, any price decrease would be the result of prices being too high relative to income to being with, and nothing else. I think that may happen.

    Next year, however, it may also be that weakness in the housing market elsewhere causes weakness in the economy elsewhere and weakness in the stock market, working its way back to NYC.

    Bonuses will be at record levels this year, but Crains reported on Monday Wall Street’s three-year bull-run is losing steam. “After a terrific first half, earnings are expected to fall 40% in the second half…The slowdown is hitting virtually every trade plied on Wall Street. Stock and bond underwriting volume plunged nearly 50% in the summer quarter compared with a year earlier. The hugely lucrative businesses of advising on corporate mergers and taking companies public are also slumping.”

    Perhaps, with a slowdown coming, those high flying finanical geniuses won’t blow their bonuses this time around. Naaaah.

  3. L'Emmerdeur says:

    I just started working at a small hedge fund.

    Everyone here is well-to-do (even the office manager drives a Lexus), and the partners are millionaires from a previous business venture (still ongoing).

    Number of homeowners: zero.

    Number of renters: all.