Manhattan has largely been immune to the direct effects of the mortgage problems that are plaguing many areas of the country. In the first place, there are few subprime mortgages here, in part because real estate is so costly and in part because many co-ops and condos require would-be buyers to demonstrate a high level of financial stability.
What has real estate people worried, however, is the possibility of secondary or tertiary fall-out from the credit crunch hitting what has been one of the country’s hottest real-estate markets. The Gotham Gazette runs through the “spillover” scenario, with an eye to what happened in 1987.
Wall Street salaries and bonuses are only part of the story behind the giddy housing market. Many brokers and bankers benefit from generous mortgage packages provided by their employers. While those packages differ, they need to continue if the market is to remain robust. Without them, trouble will appear quickly.
And the spillover effect here should not be underestimated. Wall Street traditionally contributes about 20 to 25 percent of New York City’s economic output. (No wonder Mayor Michael Bloomberg worried about the U.S. markets losing business to London and other overseas markets.) Jobs are at stake, and less employment on Wall Street has consequences for the city.
The phenomenon has happened before. After the 1987 stock market rout, the market for one and two bedroom condos and co-ops in Manhattan was hard hit, with prices falling significantly. It took several years before they recovered and began an upward spiral fueled by low mortgage rates. Apartments of that size were frequently bought by younger traders and investment bankers - the first casualties of securities firms feeling the pinch of losses and lower revenues. That market problem also caused many securities firms to trim back their staffs, contributing to the recession that followed.
Will the Sub-Prime Crisis Reach Manhattan? [Gotham Gazette]