KEY POINTS:
New York - 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 Manhattan could feel some pain.
"Manhattan
is the centre 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 St brokers and bankers, especially in the bond and mortgage sectors, are bracing for bonuses that may be flat to about 10 per cent lower than last year's record US$34 billion ($43.4 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 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 per cent of Manhattan jobs but 28 per cent 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 per cent would be in New York City. Most of them would be in Manhattan," she said.
The days of 20 per cent annual price hikes and bidding wars for the perfect New York abode look to be over.
"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.
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 per cent of the housing stock is made up of co-operatives in which residents own shares in the building instead of their individual units.
Co-op boards, which oversee the building sales, are more diligent than lenders or brokers when it comes to allowing a new buyer to share in the ownership, thus reducing the chance of mortgage defaults by the buyer.
But the most striking difference is supply. Manhattan simply doesn't have enough apartments to meet demand. 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," DiNatale said.
- Reuters