Posted by Jonathan J. Miller -Wednesday, March 21, 2012, 9:43 AM
When I was contacted to do yesterday’s Bloomberg interview, a by-product of the producer’s call was to show the affordability of housing to Wall Street. We never covered it in the interview and I was (self) taught never to waste a good charting opportunity.
While there is no reliable causation measure of bonus size to Manhattan housing prices there has long been a connection (i.e. common sense). I took the Manhattan annual average sales price for the past 20 years and compared it to the average annual Wall Street bonus per person. The resulting multiplier shows some element of affordability: the higher the multiplier, the less affordable Manhattan housing is.
I realize there are disclaimers needed in doing this including:
- With the regulatory overlay from DC rising, bonuses are becoming smaller relative to overall compensation.
- Not everyone on Wall Street getting a bonus lives in Manhattan (but a disproportional amount probably do).
- Bonus income is just less than half of total Wall Street compensation.
- Post-Lehman saw higher share of deferred bonus over cash.
- Wall Street total comp only accounts for about 25% of total NYC wages.
- Foreign buyers and Fortune 500 type executives have picked up some of the Wall Street slack.
With those disclaimers aside or perhaps because of them, the chart shows:
- The 20 year trend shows greater affordability over time but significant volatility along the way.
- Post-Lehman the multiplier shows slightly weakening affordability (despite falling interest rates).
- The early 1990’s recession, 2001 recession and 2008 credit crunch/recession all showed sharp reductions in affordability (higher multiplier).
- The 20 year average annual multiplier is 9.9
Given the fact that sales contract activity seems to be ahead of last year, prices remain stable, foreign buyers continue to participate in large numbers and the economy is grinding towards improvement in the region, the decline in bonuses doesn’t appear to be a huge deal for the housing market at this point. Certainly not helpful but perhaps can be characterized as having a nominal impact on the market – if you believe this methodology.
- Manhattan Bonus to Price Multiplier [Miller Samuel]
- [In The Media] Bloomberg Television’s “Street Smart” 3-20-12 [Matrix]
- Wall Street Comp’s Influence On Luxury Housing Prices [Matrix]