Might The New York Real Estate Market Finally Slow Down?

The New York real estate market has been hot for years now, and despite the real estate slowdown that most of the rest of the country is seeing, the New York real estate market continues to be hot. Despite sky-high property values, the real estate market continues to be red-hot in the Big Apple, and the rental market in the city continues to be extremely tight.

You can attribute a great deal of the appreciation of real estate values in the city to the success that Wall Street has had over the past 4-5 years. Firms have been doing well and bonuses have been sky-high. This has resulted in property values, already at nose-bleed levels, continuing to increase.

The problem is that this source of capital (Wall Street) is having a seriously bad year. Actually, Wall Street has had a really bad month or so. First, the subprime mortgage market collapsed, the credit markets seized up, and a bunch of quant funds took some extreme losses over the course of just a couple of weeks. Considering that these quant funds were a major source of revenues for firms such as Bear Stearns and Goldman Sachs, you can imagine the impact that this might have when year-end bonuses are handed out.

The problem is that this credit crunch affects so many aspects of a major firm's business. Quant funds blow up, and firms take major losses. The credit market dries up, so M & A becomes harder to fund, and they miss out on fees there. The stock market suffers, and retail commissions are down. This is just a top-down dismantling of a firm's earnings, and heads will roll.

People will be fired. When firms such as Goldman Sachs and Bear Stearns start reporting that projected profits are way off, lay-offs won't be far behind. Bonuses, which were sky-high the past couple of years, will be non-existent. Hedge fund managers will make much less money. Less mergers will mean less newly printed wealth.

This can only have a negative impact on the housing market in New York. Not only will it be harder to qualify for a mortgage, but there will be much less competition for homes in New York as more people will be out of jobs. There won't be as much bonus money sloshing around.

The real estate market that booming business on Wall Street fueled can only cool down when Wall Street cools down. I don't see any other way around it.

Filed under: Real Estate News | The Economic Meltdown