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Three Cents Worth: Manhattan's Bonus-to-Sales Lag

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[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller refuses to accept a simple bonuses-sales relationship.]

Since the New York State Comptroller announced official Wall Street 2011 compensation numbers today (to be distributed in 2012), I thought I'd compare Wall Street compensation per person against Manhattan sales by year. As an industry, real estate seems to think it lives and dies by Wall Street compensation. No argument that it's important to the NYC economy, accounting for 25 percent of NYC private sector wages but only 5 percent of private sector jobs.

However I've never been convinced that the housing market responds in a "knee jerk" reaction to Wall Street comp (i.e., bonuses go up, sales go up, bonuses go down, sales go down). Employment levels need to be factored in, but hey, this is only my Three Cents Worth, not an academic paper.

When I compare the year over year changes in Wall Street compensation per person and Manhattan total apartment sales, a weird pattern sort of emerges.
Pre-credit boom (1996-2001): Bonus and sales in sync

Boom (2002-2006): No pattern?just craziness

Post-boom (2007-2011): Sales lag bonuses by a year

I defined the start of the boom as 2002 after the fed pressed rates to the floor post 9/11. The boom ended in 2006. Housing prices peaked nationally in mid-2006 and the credit insanity fell off the rails in mid-2007.

The post credit-boom lag may reflect a greater amount of deferred compensation than cash plus more caution over concerns about job retention. After all, Wall Street employment is slipping.

This is clearly a simplistic look at a complex situation, but with compensation down this year, it suggests there will be no knee-jerking on Wall Street (that total sales for 2012 are somewhat less than levels seen in 2011).
· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]