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A steep reduction in Wall Street bonuses could force Manhattan home prices down another 24%

Posted by: Prashant Gopal on March 24, 2009

Oshrat Carmiel, a reporter for Bloomberg and a good friend of mine, wrote an interesting story last week about the potentially devastating impact that the the expected reduction in Wall Street bonuses could have on Manhattan real estate.

Sam Chandan, Real Estate Economics’ chief economist, told her that a 50% decline in bonuses could result in a 20% to 24% drop in home prices. Prices have already fallen 15%, Chanden said.

Jonathan Miller, co-founder and President/CEO of Miller Samuel, told me recently that he thinks Manhattan prices have already fallen more than 20%.

Prices in Manhattan have a long way to fall. The median home in Manhattan was $955,000 in the fourth quarter of last year, Miller said.

Reader Comments

Jo Coks

March 25, 2009 6:28 AM

i agree with u sir... Who Are We?
Ithaca Rentals and Renovations, Inc. is owned and operated by Travis & Travis Real Estate Development located on 323 North Tioga Street in the beautiful downtown Ithaca.

The Mad Hedge Fund Trader, San Francisco, CA

March 27, 2009 12:32 PM

It could be worse. I am more convinced than ever that real estate has another 25% to fall, and best case, it is dead money for another five to ten years. The New York Times produced some insightful data on inflation adjusted home prices for the last 120 years, which baselines at a $100,000 for a single family home in 1890. Few people realize how superheated the recent real estate bubble really got. Past bubbles very consistently peaked at $125,000 in 1896, 1979, and 1989. This last one peaked at $205,000 in 2005, almost double the previous record highs. And while we have dropped 34% since then, to $135,000, we haven’t even fallen to the past all time highs yet. If you look at historical lows, my call for a further 25% slump looks positively bullish. We saw lows consistently around $66,000 in 1920, 1932, and 1942. Postwar lows came in at $105,000 in 1976, 1983, and 1996. These figures suggest the best case low is down a further 28%, and the worst case is down another 51%. I think I’ll go find something else to trade.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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