Plentiful jobs and big bonuses in the financial sector have supported home prices in New York City's richest borough even as other once red-hot property markets have cooled. But with financial markets hitting a rough patch this year, even tony Manhattan could feel some pain.
Manhattan is the center of the financial sector and it is being particularly hard hit, said Robert Shiller, a Yale University economist and co-developer of Standard and Poor's S&P/Case-Shiller Home Price Indices.
Wall Street brokers and bankers, especially in the bond and mortgage sectors, are bracing for bonuses that may be flat to about 10 percent lower than last year's record $34 billion.
People are starting to anticipate lower bonuses and the whole effect on the market, said Shiller. There is a good chance we will see more of a downtrend in Manhattan home prices over the coming year.
Bonuses affect the sales volume and prices for the entire market by setting the tone of buyer sentiment.
It primes the pump, so to speak, said Jonathan Miller, director of research at Radar Logic, which tracks U.S. single-family and multifamily home prices.
A net decline in payouts are very likely to first impact transaction levels, he said. The number of sales then would temper the rate of appreciation. How much depends on what the bonuses end up being.
Looming layoffs could exacerbate the pain.
Last year, the securities brokerage firms accounted for 177,000 jobs, according to Moody's Economy.com. The overall financial sector accounts for 7.5 percent of Manhattan jobs but 28 percent of the overall income, the research firm said.
Marisa DiNatale, senior economist at Moody's Economy.com expects the financial sector to shed 10,000 jobs across the greater metropolitan area of New York City's five boroughs, northern New Jersey, and three counties north of the city.
Probably about 70 percent would be in New York City. Most of them would be in Manhattan, she said.
FROM ROBUST TO TEPID
The days of 20 percent annual price hikes and bidding wars for the perfect New York abode look to be over.
Frank Lively, senior vice president of Wafra Investment Advisory Group Real Estate Division, an investment vehicle of the government of Kuwait, said he expects layoffs to have little effect on the priciest apartments but will hit one-bedrooms and studios.
Many new analysts and young traders on Wall Street have fueled demand for the smaller apartments, as have the support staff of the big firms.
We may not see this double-digit growth across the board (in Manhattan), but certain sectors of the market will still experience strong price appreciation, said Pamela Liebman, chief executive at real estate firm Corcoran Group.
Data from Prudential Douglas Elliman, another real estate firm, showed the average sales price of a Manhattan apartment in the third quarter rose 6.3 percent from a year earlier to a record $1.37 million.
In contrast, the S&P/Case-Shiller U.S. National Home Price Index shows U.S. home prices were down 4.5 percent in the third quarter from the year earlier, and some markets - such as Miami and the Tampa area in Florida - have seen double-digit year-on-year price falls recently.
And while Manhattan's real estate market is likely to be under pressure as the most wealthy residents see smaller income gains, there are factors that will keep prices supported.
For one thing, about a third of new condominium buyers are foreigners, who are benefiting from the weak dollar.
Secondly, about 70 percent of the housing stock is made up of cooperatives in which residents own shares in the building instead of their individual units.
Co-op boards, which oversee the building sales, are much more diligent than lenders or brokers when it comes to allowing a new buyer to share in the ownership. That has reduced the chance of mortgage defaults by the buyer.
But the most striking difference is supply. Manhattan simply doesn't have enough apartments to meet the demand for them. Its island nature and cost of land and construction has made building new apartments expensive and difficult, keeping supply tight.
The inventory data coming out of Manhattan shows that inventory continues to fall, so there doesn't appear to be any inventory problems at all, Moody's Economy.com's DiNatale said.
(Reporting by Julie Haviv and Ilaina Jonas; Editing by Andrea Ricci)