has worried some economists, because it makes the U.S. more vulnerable to major shifts in the global economy. But it also could show strengthening confidence in the American economy.
These gains are largely due to the rising US stock prices rather than more investment. However in the housing sector, I do think rising property values are attracting even more new capital for investment – whether for new development or unit purchases. We can see this in markets like New York City and Miami. Foreign investors seem to be chasing safety and a long term equity play.
According to the 5/25 rule, the ratio of New York City jobs in the securities industry and the income they account for is 5 to 25: approximately 5 percent of NYC jobs come from the securities industry and they account for about 1/4 of personal income. With such a large, and disproportionate market share of NYC income, Wall Street has long been considered a lynchpin of the NYC real estate economy and perhaps most strongly aligned with Manhattan.
Still, it is a stretch to associate the ebb and flow as a predictor of future gains and losses in Manhattan housing prices, especially when considering deferred compensation. (Also, many Wall Streeters are getting paid from income deferred from a few years ago when times weren’t as good.) But it’s fun to chart. Especially after last week’s announcement by the State Comptroller of a 15.1 percent increase in both the Wall Street bonus pool and on a per person basis…
[click to expand chart]
My latest Three Cents Worth column on Curbed:
Do Wall Street Bonuses Affect NYC Sales? [Curbed]
The annual release by the New York State Office of Comptroller brought upbeat news to the real estate economy in NYC. Wall Street compensation has long accounted for roughly a quarter of personal income but only 5% of employment so the industry remains very important to NYC’s tax revenues. Here are some of the key points:
The overall bonus pool and bonus per person increased 15.1%.
Part of the rise was due to payouts of deferred compensation from prior years.
Here are a few charts that layout the bonus trends in NYC. Wall Street is a key economic driver of NYC and therefore important to the health of the NYC housing market.
Wall Street compensation is 5x that of mere mortals (other private employment compensation) and that ratio has stabilized after a modest correction following the 2008 stock market crash.
[click to expand]
Wall Street bonuses rose steadily as a portion of total compensation but after the 2008 stock market correction and financial reform, the market share fell – but not as much as perceived.
[click to expand]
Wall Street employment has fallen since 2008, but not nearly as much as expected. The market share of Wall Street NYC employment has slipped as a result.
[click to expand]
I can’t wait for the documentary Money for Nothing to be released. In fact I donated to IndieGoGo.com because I was so impressed that I wanted my own copy.
This documentary is compelling and so are all the cast members. It includes a who’s who list of current and past members of the Federal Reserve as well as economists and Wall Street experts. Cast members include my friend Barry Ritholtz and Gary Shilling who both have been on my podcast. Todd Harrison of the great site Minyanville.com and John Mauldlin who I have always looked to for insights. Jim Grant of Grant’s Interest Rate Observer who called me at the height of the crisis to get a gauge on the Manhattan housing market.
During the housing bubble I often felt like screaming as I saw the financial world through my appraisal glasses thinking I missed an important math class in 8th grade. Fast growing banks with gigantic mortgage volume and many of my appraisal competitors in bed with mortgage brokers were clearly smarter than me – they could make the numbers work and I couldn’t.
In 2003 and 2004 I remember being absolutely confident as a non-economist that the Fed was keeping interest rates too low for too long. I could see it in the loss of lending standards and the lavish incomes enjoyed by those around me who embraced a world of based on moral flexibility. The froth was simply ignored.
Don’t mean to get sentimental on you dear readers, but this movie struck a chord with me. Enjoy the trailer and watch for the release date announcement.
In case you have any doubts about the amount of compensation that the securities industry enjoys versus the private sector in NYC, I created the chart above. While the bonus comp results has been released for 2012, the salary data is not out yet so I built this chart from 1985-2011. In 2011, securities industry salaries + bonuses were 7x larger than private industry salaries.
In case you had any doubts about how important the industry is to the NYC, regional and state economy, hopefully you are now – love them or hate them.
Since Wall Street bonuses were announced yesterday and have been talked about and analyzed a lot over the past 24 hours, I thought I’d share the following video which apologizes a lot for compensation levels of the securities industry but breaks down the advantages of the bonus compensation practice on Wall Street.
Since New York State Comptroller Thomas DiNapoli graciously accommodated our Tuesday Three Cents Worth release date with his report on Wall Street Bonuses, I thought I’d try to come up with a chart that somehow correlates Wall Street cash bonus payments and the Manhattan housing market. Prices don’t correlate well with any form of Wall Street bonus data and employment trends seem to be too macro to equate with annual housing price trends…
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About Jonathan Miller
Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. He holds the Counselors of Real Estate (CRE) and Certified Relocation Professional (CRP) designations. He is an Appraiser “A” Member of the Real Estate Board of New York and a member of Relocation Appraisers and Consultants, Inc. Learn More...
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My friend Nathan Pyle has penned a book: NYC Basic Tips and Etiquette that should be required reading, well at least required viewing for: anyone living in NYC, or anyone planning to visit NYC, or anyone who’s ever read anything… Read More