Issue 94 – The Bonus Report: Even a Little Goes a Long Way

Wall Street bonuses are typically discussed and announced from December to late February. As such, we find ourselves in the thick of bonus season right now.

Bonuses are expected to decline slightly or remain flat this year, according to all top-tier publications, so what will this mean for real estate?

Overall, it depends on where one ranks in their workplace’s food chain.

According to Bloomberg, bonuses are in a rut after the boom-and-bust cycles of 2023. Individual bonuses for the majority of traders at many financial service firms will be flat for the second year, however, it is not all doom and gloom. Overall, certain performers may see payouts rise slightly – as much as 7%. “Firms may [even] sweeten trader payouts by a few percentage points,” explains Bloomberg.

Reuters concurs. According to a recent study by Johnson Associates, a compensation consultancy, “Most Wall Street professionals will have to wait another year for a rebound.” Reuters similarly advises that there are some exceptions: “Investment bankers working in equity underwriting are projected to receive payouts that are 5% to 15% higher than last year, while wealth managers could receive awards that are 5% higher.”

The study above reflects a significant divide between the bonuses for managing directors versus directors and analysts. Analysts typically receive a percentage up on their base, so they usually feel content stemming from the growth they are experiencing. They are more likely to be satisfied with any given bonus because their entry years are a bit leaner. They are optimistic they can create savings, and, for the first time, be able to build toward ownership. On the other end of the spectrum, in certain divisions within a financial institution, some teams are still being paid handsomely – especially if they were exempt from low performance and thus rewarded.

Whether the bonuses are robust or paltry, my belief is any type of bonus is better than none, and there is already evidence of this. In the first week of January, we saw mortgage demand surge to 10% as lower interest rates began to lure homebuyers back into ownership. This indicator is directly in line with entry market buyers who are now seeking to take market share.

While bonuses may not perform to 2021 or 2022 expectations, most people receiving anything above their base are going to utilize their bonuses toward creating or building growth through owning equity or reinvesting into the markets. This is already resulting in movement in the real estate market. Segments of the market that did not move last year – specifically co-ops – are now finally thriving. I was shocked to see such stagnation throughout the co-op market last year– uptown and downtown. Thankfully, my co-ops now have contracts!

While bonuses may not be as plump as years’ past, based on what we are already experiencing in the first few weeks of 2024, it does seem that people are tired of sitting on their hands.

Of course, those who received ample bonuses will still want to seize the opportunity to use their money to identify amazing upgrades at 2023 pricing. In NYC, those with bonuses from finance firms typically look to buy in the $2.5-$5M range, targeting areas such as the West Village, Tribeca, Soho, Gramercy or Flatiron, so we will see movement in those neighborhoods. According to the recently released Elliman Report, while overall sales slipped a bit year-over-year, sales at the $5M mark surged. I anticipate that to continue and suspect because rates have lowered, people can take on a bigger mortgage this year.

Additionally, the Elliman Report states that mortgage rates began to decline in the middle of the fourth quarter as the Fed paused. Rising mortgage rates kept listing inventory low as homeowners were reluctant to enter the market and lose their low rates. Listing inventory declined annually over the past three quarters due to the impact of unusually low mortgage rates during the pandemic era.

As rates decrease there is less wiggle room for buyers and more upside for sellers. After declining year-over-year sales for four straight quarters, the median sales price rose 5.1% to $1,156,391 -15.8% above pre-pandemic levels. Average sales prices followed the same pattern, increasing 3.8% annually to $2,013,963 – 10.9% above pre-pandemic levels. Because bonuses this year are expected to remain the same, I anticipate there will still be a lot of movement. With lowering rates, buyers and sellers may feel it is time to get into the game. We are at an inflection point in the market.

Meanwhile, new listing inventory continued to stay below the 2022 levels. Because of the continued trend of low inventory as we begin 2024, and that mortgage rates have already dropped by 1%, home prices will remain strong.

Largely, I believe most people recognize that the market has softened and that offers them the ability to get a good deal to take opportunity in solid buildings. They may have been priced out previously, but now, even without a massive bonus, they can dive right in.

Because I believe that many people are trying to balance their work and home lives, buying property that offers that perfect equilibrium is an essential part of creating the quality-of-life experience they are seeking.

This is an exciting time for first-time buyers, and an ideal market for existing homeowners to take advantage of softer pricing and upgrade to a larger property. This spring, inventory will free up, and options will also attract formerly sidelined buyers. I am eager to see all players take advantage of the market as we head into what promises to be a fruitful season.