Hey, Brokers: Don’t Fall in Love With a Banker

In 2006, year-end Wall Street bonuses set cumulative and individual records. In the first half of 2007, more luxury apartments sold in Manhattan than in any first half of any year since at least 1989. We’ll never know how much the two are connected.

Manhattan home sales do not automatically and consistently increase when Wall Street bonuses increase. The bonuses do often affect home prices, however, particularly at the higher end, as The Observer noted last December.

But what about the sales in the first half of 2007? Over 740 luxury apartments traded hands, according to appraisal firm Miller Samuel, a division of Radar Logic Inc. The firm measures luxury as the top 10 percent of home transactions in a quarter.

These sales came in the wake of a $23.9 billion bonus season, one where the average payoff to securities industry workers (investment bankers, bond traders, stockbrokers, etc.) was $137,500, according to the deputy state comptroller’s office.

More importantly—for both Wall Streeters and New York City, the economy of which turns on their work’s axis—what of the talk of 2007’s bonus season as merely so-so in comparison to recent record years (2003, 2004 and 2005 were also records cumulatively and individually)? Will the Manhattan housing market stumble in the crucible of a merely O.K. bonus season?

Two things: the market’s already peaked; and a bad bonus season could slam the housing market hard.

Luxury apartment sales have been increasing quarterly the past 12 months. And each of the last two quarters, luxury sales have topped 340.

The first half of this year has seen some of the biggest single-home sales New York and the world will probably see for years to come: an at-least $50 million collection of condos in the Plaza by a single, still-unknown buyer; the $50 million-plus Edgar Bronfman Jr. townhouse on East 64th Street; the $33 million townhouse of his brother, Matthew, a record for a townhouse so slender (under 26 feet); a $42.4 million penthouse at the Zeckendorf-developed Fifteen Central Park West by Sandy Weill’s family. Meanwhile, the average sales price of a luxury apartment (not including townhouses) climbed above $5 million by midyear, a near-record reminiscent of the housing boom’s heyday in 2005.

And that’s just it: The heyday’s over. Sales remain robust, and a lot of the activity is at the higher end of the market. The market share of apartments selling for at least $1 million has increased steadily this decade. It represented 42 percent of Manhattan homes sold in the third quarter of 2007.

But prices have moderated overall. The total average Manhattan apartment price in the third quarter increased 2.7 percent over the second quarter—the smallest quarterly rise since the tail end of 2002. And, on the luxury end, the average has fluctuated mildly between $4.5 million and $5.1 million during the past 18 months.

Now, would a bad bonus season send the moderate market to poor? Yes. But that’s if it’s a bad season. And what’s a bad season?

The deputy comptroller numbers go back to 1985. The average individual bonus has dropped by double-digit percentages in only six of the past 22 years. More often, it’s risen, however incrementally; the last time it dropped by double digits was in 2002, a year still in the wake of Sept. 11.

Such a precipitous drop this year from 2006 seems unlikely. Instead, bonuses should be hefty, though perhaps not record-breaking.

Wall Street bonuses, the logic goes, would have the greatest effect on the housing market in the first six months of the following year: A big December bonus is supposed to drive a big apartment buy in March or April.

That’s often not the case; the bonus bounce held sacrosanct by many brokers and analysts is uneven at best, as flimsy a rule of thumb as any in a market that consistently sells around 9,000 apartments yearly and that often defies prediction.

The last time any first half of a year saw as many luxury apartment sales as in 2007 was in 2002; that first half, 483 traded. The bonus season immediately before, in 2001, totaled $13 billion. Yet that first-half 2002 sales amount remained greater than those in the next four years, despite higher bonus seasons preceding three of the four and despite greater inventories of luxury apartments for buyers to choose from.

Within the next six weeks, the deputy comptroller’s office will release an estimate of 2007 Wall Street bonuses. Much will be made of the likely 12-figure estimate. It will be months, however, before anyone can gauge its effects, if any, on Manhattan housing.

Hey, Brokers: Don’t Fall in Love With a Banker