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December 5, 2005

Bonuses Trumping Interest Rates in NY Market

The NY Post concludes a brief article about interest rates' upward trend and the possible impact on an already-softening market with this almost-throw-away comment:

Regardless of what happens, Manhattan real estate might be less dependent on interest rates than the rest of the country, thanks to year-end Wall Street bonuses. So don't count on the boom ending just yet.

At this point in Brooklyn's evolution, we'd argue that the brownstone market is also quite tethered to Wall Street's fortunes, although most of the bankers we know are pretty much limited to Brooklyn Heights and Cobble Hill. The trickle-down effect alone should make everyone in the Brooklyn market keep a close eye on what happens on Wall Street over the next month. If Goldman Sachs is any kind of an indicator, a few measly fed fund increases won't get between the newly-moneyed and their castles.
Taking an Interest [NY Post]

Comments

Everyone always says this but I refuse to believe it - aren't Wall Street folk smarter than to buy something in a super heated and seemingly unstable market? Aren't they rich because they don't make stupid decisions? And besides, don't a lot of them already own? I don't think we'll see a massive buying surge because of bonuses - houses aren't the only things people buy, although you'd be hard pressed to believe otherwise thanks to the insanity of the last few years.

Posted by: Anonymous at December 5, 2005 9:12 AM

I agree. Wall Streeters have their fingers on the pulse. It remains to be seen whether they think the real estate market is the right place for their money.

Posted by: Anonymous at December 5, 2005 9:24 AM

This is hardly a statistically adequate sample, but most of my colleagues in the investment bank in which I work are not planning on buying top of the market real estate. In fact, people here who snapped up distressed real estate in the early 1990s bust are counting on stretched-to-the-max owners to default, sorry to say.

Posted by: anon at December 5, 2005 9:54 AM

wall streets look for value in the market. if there's something that's of value and they are looking to buy a place, they will buy. jonathan miller always talks about corridors of value. same idea. not everything out there is overpriced. a lot is, but there are some pockets of value. and yes, there is a trickle down effect.

Posted by: ltjbukem at December 5, 2005 9:59 AM

A lot of guys who have been sitting on the sidelines renting and putting off their wive's repeated requests to buy a home for their family is going to have a hard time keeping peace at home when he gets $5 million check and won't mocve the family out of the rental.

Posted by: Anonymous at December 5, 2005 10:07 AM

I work on Wall St. I don't know anyone over 25 yo who rents and everyone on my floor seems to trade up every 3 years, market be damned. Dude, it's not about value, it's about the bling. Have you seen the cars we never drive?

Posted by: Anonymous at December 5, 2005 10:16 AM

I don't think there are guys renting now who are expecting $5 million bonuses and waiting for a family home - that's an unlikely scenario. Maybe the wives want a 6000 sq. foot home instead of the 4500 sq. ft. box they own now. But these dudes are not renting.

Posted by: Anonymous at December 5, 2005 10:18 AM

Its sad to listen to people carp about this being the top of the market blah blah blah. Actually, they have gotten quite good at the rant given that they've been singing it while crying in their beer for 10 years. Lets stop with the envy and bitterness already folks. The idea of this blog is to celebrate Brooklyn's beautiful and historic brownstones and neighborhoods, not whine about the fact that you keep on misjudging this market.

Posted by: JohnnyFresh at December 5, 2005 10:22 AM

Questions for brownstoner/Under the counter:

1.) Everbody focuses on the top earners on Wall Street, but how many make over 500k a year, how many over 1m?

2.) How many of the middle-tier bankers 250-500k copm guys actually live in Manhattan/Brooklyn. How much many will actually end up commuting from Westchester, CT, NJ?

My observations: I am working on Wall Street within Quantitative Research. We earn quite well, but the 500k bonus is a rarirty here. Almost everbody here lives outside of Manhattan except new joiners, who live in a studios....

Posted by: Anonymous at December 5, 2005 10:24 AM

Another comment: For every trader, every I banker, very private equity guy and so on, I guess there are 10x more people in technology, middle office, treasury, risk management, ops and so on.

Wall Street pays well - no doubt about but it and nothing to complain at all - but at the same time it is like pyramid scheme heavily tilted to the top...

Posted by: Anonymous at December 5, 2005 10:30 AM

Anon 10:16 is right (and funny). The bling factor is of major importance to Wall St. crowd. Some hedge fund guy just bought a place for $45 million (a record). We'll see if other financial types follow his lead in their efforts to one-up eachother.

It's odd to think that our economy is so driven by ego and sex. Law of the jungle, I guess. The guy with the fanciest feathers, biggest horns, or the most tricked out den gets the chick.

Posted by: anonymous at December 5, 2005 10:42 AM

I first have to take issue with the first comment - Wall Streeters never make stupid mistakes?! Are you freakin' kidding me?! But I have to somewhat disagree with the 'Stoner regarding what nabes are closely tethered to Wall Street. This is New York City. We are all closely tethered to Wall Street. From the artists in Billburg who make the art that hang on the Wall Streeters walls; to the Pratt Professors and other art world types who train and flog the wares of those artists in Clinton Hill; to the director of a small non-profit that relies on Wall Streeters largesse who lives in Kensington; to the hedge-fund in-house counsel with his wife who works at the Goog in Prospect Hts; to the immigrant in Brownsville that cleans the offices at night; etc etc. I'm just using a few specifc examples to make my point, not generalizations. Obviously, If Wall St starts having problems, there's going to be worldwide repercussions, but here in NYC we're all gonna have problems much more directly than pretty much anywhere else. And that includes in the brownstone market in Bklyn... to get the back to the point.

Posted by: Mr. Minerva at December 5, 2005 11:07 AM

Not doubt about it Mr. Minerva. NYC depends on Wall Street and esp. real estate, but the notion

"Wall Street has a good year - everyboy on WS gets tons of money (and is surprised by it) (at least over 300k) - runs to the next NYC real estate office to get rid of the money asap"

is a little bit simplistic and not the reality IMHO.

But again the city depends on WS. Defenitely.

Posted by: Anonymous at December 5, 2005 11:16 AM

The Wall Street guys who will get big paydays this year are not necessarily the guys who got paid the year(s) before. It rotates. This year was good for M & A and Commodities, terrible for bonds. Three years ago they were firing all the M & A people. It will be new people with money in their pocket. And Wall Streeters are notorious for being awful personal investors. They are as emotional as anyone else is (with their own money). The guys with the big money are going to trade up, the newbies will enter the market. That doesn't mean prices will go rocketing up. There is a lot more inventory out there. Prices just aren't going to fall out of bed. Does there seems to be more people with families staying in the City -- everyone doesn't automaticaly run for the suburbs when child #2 comes along. At the end of the day, it is demographics which dictate housing costs. More demand >> higher prices.

Posted by: Anonymous at December 5, 2005 1:02 PM

Well said 01:02PM
It always makes me laugh when I see ppl commenting about how smart wall streeters are.
I posted about this on curbed:
http://www.curbed.com/archives/2005/12/01/curbed_roundtable_december_stateothe_marketreport.php#2126
Comment #28

Another example from me here:
http://forums.newyork.craigslist.org/?ID=29600066

The artcile I was linking to is now here:
http://www.nytimes.com/2005/06/26/realestate/26profession.html?ex=1133931600&en=54dd0398ac389e7c&ei=5070

Posted by: VDH at December 5, 2005 1:20 PM

A lot of this is based on some very shallow stereotypes. I work on a trading desk. I think everyone here is going to be paid well - this is a pretty hot area now. But everyone here is pretty normal. No one is looking to show off any more than your average person.

One guy here is an MD who I would bet is well in the solid seven digits. He lives in a 2br in Hoboken w/his wife.

Our desk head lives in NJ and commutes 1.5 hours.

No one is living in Trump towers and getting carted around by ten young nymbphs while showing off their bling - even if they could.

I think one thing that people are very aware of is that there are ups and downs and that you have to be financially ready for whatever they are - and not levered up the arse for a 5br CPW pad.

Posted by: JoshK at December 5, 2005 3:54 PM

One of the few things I agree with JoshK.

Yes, there are people who makes tons of money and a few of them even make into or buying the Trader Monthly, but the stereotype people seem to assume everybody on Wall Street tries to mimick is the exception...

Posted by: Anonymous at December 5, 2005 4:20 PM

BTW: This is something I don't like about 'Under The Counter'.

It is one thing to look at expensive real estate, it is another thing to look at the people, who should be able to buy them.

In my area people are not as snobby, egomaniac as implied at "Under The Counter", but pretty normal.

Posted by: Anonymous at December 5, 2005 4:22 PM

Whatever the direct or indirect impact of Wall St. money on the local economy, it is safe to say that Wall St. sets the pace, the mood of the NYC consumer mindset. When Wall St. is having a good year, the city is infected with a fairly positive mood - even folks in other industries are inclined to feel more positive - whether there is a good reason to or not. Perhaps it's a matter of keeping up with the Wall Streeters.

Posted by: Miguel at December 5, 2005 4:25 PM

Also, I'd point out, that while there may only be a few thousand folks making seven-figures on Wall St., there are legions of mid-level folks making $250K - $500K. And that ain't exactly peanuts, especially when you combine two incomes. These folks can still "afford" 2BR Manhattan apartments and brownstones in Bklyn (care to comment on that brownstoner?).

Posted by: Miguel at December 5, 2005 4:29 PM

Anon 4:22,
No disagreement with you there in general (heck, we work on Wall Street), but the minority who get the majority of the attention are eminently mockable, from the one-dimensional frat boys (okay, make that two dimensions: money and sports) to the idiots dropping $10K in a single night at a strip club or one-upping each other for beachfront in the Hamptons. Good material though.

Posted by: Brownstoner at December 5, 2005 4:34 PM

Not questioning your underthecounter coverage. Hey, I'm a "mid-level" guy myself, but I enjoy reading about the big boys (especially if there is some mockery involved).

I guess my only point was that Wall St. has a very tangible impact on the local r.e. market. I can't think of another industry that generates the shear number of +$250K earners, other than Wall St.

Posted by: Miguel at December 5, 2005 4:45 PM

Oops - got the curbed link wrong
http://www.curbed.com/archives/2005/12/01/curbed_roundtable_december_stateothe_marketreport.php

Posted by: VDH at December 5, 2005 5:16 PM

nevermind

Posted by: VDH at December 5, 2005 5:37 PM

I don't know anybody who claimed that 10 years back (1995) was the top of the market. So its total nonsense to suggest that people have been "misjudging the RE market for 10 years"

Bonuses help the RE market of course, and interest rates hurt it a little. Its ultimately a matter of psychology though. If people feel that prices are going to keep going up no matter how high the price, they will buy. Otherwise they won't buy.

Heres an interesting statistic -- one NJ paper had an article on the number of people who made more than $1 million a year (according to Nj tax records). For the last 3-4 years, its been $1M) is even in NJ.

Posted by: erg at December 5, 2005 5:57 PM

Lots of traders, analysts, investment bankers, and fund managers live in Park Slope, Fort Greene, Clinton Hill, Prospect Heights, Boerum Hill and of course Brooklyn Heights and Cobble Hill. And lately I've been hearing of bankers moving in to Lefferts Manor, Windsor Terrace, Ditmas Park, and other areas too. Just because they work on Wall Street doesn't mean they are blind to the great housing stock throughout brownstone Brooklyn? Why not buy a mansion in Clinton Hill for the same money of a regular sized house in Bklyn Heights or a med. sized condo in Tribeca? But housing stock's not the only reason to come here, the schools are good (well, at least a lot of them are), there's less noise, great restaurants, fresh direct delivers, and much more.

Posted by: Anonymous at December 5, 2005 9:55 PM

JoshK you work on a trading desk? Not according to your city council website (if that is you)

City Council candidate Joshua Yablon is a Vice President at Greater Talent Network, the nation�s premier celebrity speakers bureau.

Posted by: David at December 6, 2005 1:34 PM

JoshK you work on a trading desk? Not according to your city council website (if that is you)

City Council candidate Joshua Yablon is a Vice President at Greater Talent Network, the nation�s premier celebrity speakers bureau.

Posted by: David at December 6, 2005 1:34 PM

David, Josh Yablon is a friend of mine - not me. I've volunteered w/his campaign. I suppose I should change it now that it is over, but I don't have a website of my own...

Posted by: JoshK at December 6, 2005 7:34 PM

Having been a banker for 5 years, it is important to understand what many have already noted, most folks do not make bonuses of greater than 250K. For every banking group (industry / product)within a firm, there are generally 20 Analysts (1-3 years out of college) who earn bonuses of between 30-70K (pre-tax) and 10 Associates (1-3 years out of business school)who earn bonuses between 60-250K (again, pre-tax). As the tax-rate is close to 50% on the cash bonus, you can do the math. If you add the fact that most post-MBAs have MBA debt, there is not all that much money going around at the end of the day to purchase a significant amount of real estate. Since a significant amount of VPs-MDs bonus is stock compensation, the amount of cash floating around is not the million an MD might earn. Additionally, it is important to remember that the ranks thin out significantly on the way to MD. So, I would not expect such a rush to purchase real estate.

Posted by: Anon at December 7, 2005 10:47 AM

http://www.possibilities-unlimited.com/wwwboard/messages/11018.html currentmontgomerypause

Posted by: stories at April 16, 2006 8:13 PM

No man loves his fetters, be they made of gold... Geoffrey

Posted by: Geoffrey at November 21, 2006 12:47 PM