2009 Sep 16th

The Weekly Wednesday Wrap Up – Hoboken Condo Sales & Inventory for the Week of September 15th

Hoboken Condos Inventory & Sales – Week of September 15th

Here are this week’s numbers:

Here is the Weekly Wednesday Wrap Up from: September 8th, September 1st, August 25th, August 18th., August 11th., August 4th.

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Studio & 1 Bedroom Hoboken Condos:

19 new listings

175 total active

5 dabo. 89 average DOM.

5 sold

20 price reductions.

Two Bedroom Hoboken Condos:

19 new listings

268 total active

4 dabo’d. 121 average DOM

10 sold

21 price reductions.

Three Bedroom and Larger Hoboken Condos:

71 active

11 new listings

No dabos

1 sold

5 price reduction.

Hoboken Condo Open Houses

If you are in the market for a Hoboken condo, our Hoboken Open House Google Map is your single best source for locating every open house in Hoboken. It’s posted on Friday every week. The info is updated weekly. If your google search seems to pull up an older version, click on the title link to get the most current map. Like this report, to receive the map with the actual links, you will have to request it.

Want to Receive New Listings & Price Reductions Daily?

If you would like to be emailed the new listings and price reductions each weekday in either 1br, 2br or 3br categories just email us at [email protected] letting us know which size(s) you would like and we’ll add you to the daily email list.
You can always contact us at 201 993 9500.
Thanks for reading and, as always, we welcome your comments!
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  1. thoughts

    I’ve said it before, but I’ll say it again. I’m still totally impressed with the prices in Hoboken. A nice 2 bed place near the PATH still gets a good price in this market:

    94 Clinton
    618 Jefferson

    I’ve seen the argument on here before – but, I would still stay far away from the west side and north/west side unless I was getting a really (really) good price for that area. In other words, I would pay a premium to be near the PATH, so I would have no issues re-selling the place in the future and hopefully get a nice increase. I’m not sure how some people say that being near the PATH is not worth the premium. Of course, you still need to negotiate a discounted price in this market in any area you buy in.

    Thoughts?

  2. Andy

    Thoughts, its all about who your buyer pool is. I have to say you are right about Path locality. New people to Hoboken fixate on this fact because transportation out of Hoboken is the big draw that this town has to offer. I just can’t handle the B&T crowd that comes in to Hoboken Thurs-Sat night.(Some of my Manhattan friends like to call Hobokenites B&T but there is a HUGE difference between someone from Hoboken and someone from Seaside Heights).

  3. Bill

    The people from Seaside Heights are fine…

    Its the tourists and weekenders there that are the problem…

    anyway…seems like a ton of price reductions for a rebounding market….what gives?

  4. Andy

    Lori, do you think we’re lagging on the upswing just like we lagged on the drop?

  5. homeboken

    Bill – The market isn’t rebounding, there as a rebound in volume, not price.

    The recent (2 week) spike in invetory should be very sobering to Sellers. Prices won’t start to stabilize and increase until inventory gets to the 6 month mark.

    I asked Lori last week how many months of inventory 502 condo units represent and she responded “Years”.

  6. homeboken

    Sorry above was a response to Andy, not Bill

  7. stan

    Price are impressive in regards to other areas of Nj but certainly not in relation to the Hoboken of 2007 or 2008. Many of the places took serious discounts to sell.

  8. thoughts

    stan – i agree with your statement for certain areas of hoboken. but, a nice two bed place near the PATH usually moves quickly at less of a discount.

    do people think there are different real estate markets (or areas) in hoboken? or, is it one big market?

    thoughts?

  9. thoughts

    stan – i also agree that we’re not at 2007/2008 prices anywhere in hoboken.

  10. JC

    Thoughts…I think we have exhausted the whole west side vs. near path conversation. To me anything with a 07030 zip is a market and in any market are sub markets. Streets, quality outdoor space, non-renovated, etc.

  11. thoughts

    JC – I disagree. I think the different markets (areas) show in the numbers each week, so I find it very interesting. I can’t consider Hoboken one market because the areas are just so different.

    Anyway, just to study a part of the market, what do people think about these particular sale prices:

    94 Clinton
    618 Jefferson

  12. Bill

    Thoughts, I think you should change your name from thoughts to thought

    talk about a one track mind

  13. thoughts

    thanks Bill. well, the discussions have been pretty boring the last few weeks to say the least. different thought, is the blog dying?

  14. homeboken

    I don’t think the conversation has been boring. Granted, once we all agreed that you purchased the most amazing condo in the history of Hoboken and got it for a price that will gurantee you princely riches when you re-sell, you started to lose interest.

  15. thoughts

    homeboken – i think you’re mistaken, but i don’t care. you have the floor – what do you want to discuss that’s not boring? agents not being trustworthy for the millionth time? please – say something interesting besides how bad the market is over and over again. the market is obviously not that bad. i was trying to discuss the sale prices, which is what people should also focus on. i know a ton of people having huge trouble buying a nice one bedroom in a decent area for a reasonable price. lets discuss that – is that true?

  16. thoughts

    sorry – i meant to say “two bed” – not one.

  17. stan

    thoughts-

    I agree that an identical condo on 1st and bloomfield will sell for more than an identical condo on harrison and first. However due to the housing stock of Hoboken, the apartments are different. People have different choices. Get a bigger-newer place away from the path on land that was not residential not too long ago or get a smaller place with no parking, closer to the path. I do agree that outlying areas cost less per square foot, the numbers don’t lie.

    Many people do the reverse commute out of Hoboken, why be near the path for them?

    Lastly, as far as affording a one bedroom, not everyone can always afford Hoboken. You need to make well above the median to afford in 07030. or a lot of savings. It is what it is.

  18. Lori

    I wonder how much of a down payment those people who are having the “huge trouble” plan to make? Perhaps the trouble stems from their desire to live beyond their means. Something which has become significantly harder to accomplish now than it was a few years ago, at least with respect to housing…

    And, no, this blog is not dying, I assure you.

  19. homeboken

    Lori & Thoughts – Perhaps these folks do live beyond their means. There is a fundamental shift in the desire to own a home. The new majority would rather rent a reasonable home and have money to raise their kids, go on vacation, go out to dinner, etc.

    The idea that one must live a frugal life so they can save a downpayment to live in Hoboken is nuts.

    Why do you want to own in Hoboken? Gee, let me sacrifice 3-5 years of living so I can join the exclusive ownnership club. Ohhhh great, I can’t wait to look down on renters and feel superior with other owners. I can’t wait to pay a limitless city, county and state tax bill. I can’t wait to own so I can pretend that my home is the greatest achievement of my life.

    Get real folks. People DON’T CARE about owning their shelter anymore. It is a money losing investment (on average) for the next decade.

  20. Andy

    Homeboken, I disagree with your last statement. I am rapidly aproaching 30 and I was able to put 20% down on my 500+k condo w/out any help from parents and I didn’t work as a front office guy on Wall St taking home big bonuses. I just saved and no I didn’t give up that much to make the 100k downpayment(still went on vacations and enjoyed my 20’s). I just love the fact that I’m financially secure and am no longer flushing 1800-2000$ a month down the drain and rather count my home as another “savings” account as I have a 30 yr fixed mortgage at a great rate. I’m not trying to brag here but I’m trying to make the point that owning a home was one of the best decisions I’ve ever made. My net worth jumped when I purchased because of the net cash flow into my home instead of someone else’s pocket plus I got a tax break. I don’t have children yet but most people who are 30 or under don’t. But now that I’m financially secure I have that option and know that I can afford it.

    As it relates to downpayments, I’m not trying to be judgemental here but many of the Hoboken residents would rather guzzle a few grand in beer each year at the bar than save that towards their future. Its one of the things that makes our town economicallly viable so I hope that doesn’t change. For those of us who were smart enough to avoid those pitfalls I think we’re far ahead of our peers financially. There are definately ways to budget and come out on top while still having fun.

    As for those who lived beyond their means, I think much of those sales in this down market were exactly those people who thought they could afford to swing a 500-600k apt, had a kid or two, and saw their home value drop. Many people in 2005-2007 did not have the 20% down and couldn’t swing the PMI payment so they took out adjustable mortgages or had piggyback loans with high interest rates. I think many of those people bought the idea that their home value would apreciate and they could refinance. That never materialized and they got sold a bill of goods. So they dumped the place on the market to get out from under and restart. That happens when you don’t feel tied to your purchase by putting in a downpayment. The “walk away” mentality is easier than reality.

    Homeboken sorry I just re-read your sentance about the limitless tax bill, I’m not sure if you are a renter or not but if you live in Hoboken I can assure you that your landlord unless they are a complete idiot is passing along their monthly tax bill to you in the form of rent.

    The best thing that can come of this is that people will start behaving more responsibly at least for the next few years.

    Hope this generates some discussion.

  21. stan

    andy. some good points but one could certainly argue that the renter who decided to rent from 2006 to 2009 and is looking to purchase now increased his net worth on the order of tens of thousands of dollars.

  22. homeboken

    More responsible behavior includes not taking out a mortgage that is more then 3 times your income. With a $100,000 per year salary, and a $400,000 mortgage, you are stretching yourself very thin.

    As for the landlord passing the tax bill along to a renter, heres the beauty part as a tenant. They move out! Now the landlord gets to pay the mortgage AND the tax bill.

    Look, my point is this: We had the home-ownership as part of the American dream crap crammed downed our mouths for the lst 50 years. I truly believe that the next generation(ie those currently 15-30 years old) do not care if they rent or own. The idea that renting is “throwing money away” is horrible. Renters get shelter for that money, it’s not like they are throwing the money in the trash. What’s the difference of paying rent, or paying mortgage interest? so the money goes to the bank instead of a landlord?

    For the record, I do rent, by choice. I was close to pulling the trigger on a purchase in May 2009, and decided that it didn’t make sense financially. I can find better places to invest my money. I prefer liquidity and mobility.

  23. patk14

    Andy, even with the 20% down, most of your payment is going to the bank in the form of interest. It’s not like your monthly payment is going all to reduce principal. Do you view your interest payments as flushing money down the toilet like rent? You have made a highly leveraged (80%) bet on Hoboken real estate which is unlikely to provide positive yields over the next decade.

    Lori, how much house can I afford? I have $1.5 million in the bank (including 401K), 40 years old, make $300K/year, currently renting. In my mind, based on my income, I’d feel comfortable paying $700K for a place but not much more. It is why I’m amazed by people making $100K who leverage themselves to buy a $500K apartment. If you don’t have parents standing behind you, how does that make any sense?

  24. JC

    This is america. We dont save (except this year) and many live paycheck to paycheck. This is the reality our country has come to and is fact. Consumers will consume and continue to charge away groceries. Anybody who has a problem with that can choose to live a more financially responsible life and all on this board I assume do. Lori has given many examples of her lifestyle and that’s her choice and I respect that. I chose to put 10% instead of 20% down because the opportunity cost of that other 10% is too large to freeze up.

    Patk14 you asked how $100k salary should buy $500k house. I would like to submit the average 21 year old out of College grow’s their income MUCH faster over a 10 year period then the average 35 year old going forward 10 years. I know this job market sucks etc…but a twenty something making $100k who buys a house for $500k may be confident in their income potential and after a few years that mortgage payment will be a low % of their income.

  25. homeboken

    “Patk14 you asked how $100k salary should buy $500k house. I would like to submit the average 21 year old out of College grow’s their income MUCH faster over a 10 year period then the average 35 year old going forward 10 years. I know this job market sucks etc…but a twenty something making $100k who buys a house for $500k may be confident in their income potential and after a few years that mortgage payment will be a low % of their income.”

    That’s an awfully risky assumption to make.

    http://www.nytimes.com/2009/09/18/nyregion/18unemploy.html?_r=2&hp

    http://cityroom.blogs.nytimes.com/2009/09/17/city-unemployment-rate-exceeds-10/?hp

    The recession may be over for the rest of the nation, as Ben S. Bernanke, the chairman of the Federal Reserve, has suggested, Mr. Paterson said, but New York is still caught in its throes.

    “What he’s saying about the national recession doesn’t apply to us,” Mr. Paterson said at a news conference at the Borough of Manhattan Community college in Lower Manhattan.

  26. Andy

    I’ll submit that JC is correct in his assumption for many of my friends and colleagues in my age group. We all started out on the low end of the salary spectrum for our jobs as all new hires should but rose rapidly this decade. a 400k mortgage is roughly 2000$ a month in P&I. add taxes and insurance and you’re hitting maybe 2700 even w/ Hoboken’s high taxes. So you’re looking at roughly a 5000$ tax deduction every year. How is that unaffordable when renters are paying 2000$ a month not getting any equity in the form of principal payments nor the tax deduction? I make out very nicely. Just using these figures my net cost would be roughly $2250 a month and building equity every month. Plus I don’t have to deal with a landlord raising my rent. My costs are fixed w/ the exception of taxes. We have an excellent condo association with huge sums in the bank so we have never faced special assessment in the history of our building.

    Pat, I also submit 10% of my salary to my 401K and have both a Roth and a Traditional IRA which I was able to contribute to(getting phased out of the Roth now but I might convert my traditional into a Roth next year). I still have plenty of cash left over each month to go on several vacations each year. I am not making mega bucks by any stretch. But I’m absolutely financially secure. I also have a year’s mortgage in liquid savings accounts.

    My point is anyone can do it if they focus their goals. I’m not some trust fund baby. I worked hard and was able to meet all my goals within my timeframes.

  27. patk14

    JC, go ahead and assume the 25 year old gets 10% annual raises on that $100K. At 35, he/she is making $259/year which would be reasonable to buy a $500K property. If the 35 year old making $300K gets 3% raises over the next decade, that is $403K. But I wouldn’t go out and make a leveraged bet that I will get 10%/year increases. Just as likely you’ll get laid off. Not smart investing in my book…but many of today’s entitled youth seems to think that they deserve a million dollar condo with putting in the work and saving (putting off gratification) for a number of years.

  28. Andy

    Homeboken, where are you going to move? The tax rate in NJ is one of the highest in the nation. If its going to be passed onto you as a renter in Hoboken which it is then your only option is to move out of town. I was trying to make the point that renters are not exempt from paying taxes via rent.

    JC, I agree with you on your decision to put 10% down and free up that money for other investments. I chose to do 20% because at the time I didn’t want to pay PMI and since I work in the industry I didn’t want to end up being one of those people w/ a variable piggy back mortgage. The variable nature (and btw rates were sky high back then) made me too uneasy so as to not be able to budget my costs apropriately for me. But that was a personal decision.

  29. rob

    lori please update this week’s dabos link. even thought it says 9 dabos vs 5 dabos last week, likn takes you to the last week’s 5 dabos, thanks

  30. homeboken

    Andy – Would you mind sharing your numbers? I am coming up with a much higer monthly nut. Here are my inputs

    $500,000 condo
    $100,000 down
    5.0% fixed 30 yr
    Property tax 1.75% (8,750 per year)
    $2,500 insurance per year

    Equals $3,071 monthly payment. Add condo fees of $250 per month and you are at $3,321 per month.

  31. Andy

    Your taxes are off. and your insurance is way off. I pay like 500$ a year for my insurance thru Allstate for Condo insurance. The building has its own policies which our condo fees go thru.

    Suffice to say my P&I + taxes(escrow) are (not giving actual figures but you can get the point) $2750 per month. I have a 5.5% fixed rate. 20% down so 399k loan for 30 yrs fixed. Insurance is 500$ / year and I get roughly 5000 a year in tax rebates from the feds. If you add in my condo fees I pay 2500 a month give or take.

  32. Andy

    I can understand 2500 give or take is not for everyone but knowing that I get to keep a portion of that monthly bill due to principal reduction is a nice savings account for me. When I was renting I was spending 2000 a month in rent or 24k a year and got back a 350$ rebate from NJ as a renter. I built no equity because I didn’t own. I did the cost over the years that I spent in rent while living in Hoboken and I spent over $120,000 in rent for the past 7 years(my rent was much cheaper than 2000 when I first moved to town).

  33. Lori Turoff

    Rob – I fixed the link but, of course, the system being as imprecise as it is there are now 13 listings as some were entered by agents late (this week) but show up based on the contract date of last week. You would think with technology being what it is that we’d have a decent program!

  34. patk14

    Andy, do you calculate how much you pay in net interest each year (netted for tax benefit)? On a 30 year mortgage, a large %’age of your monthly mortgage payment is heading directly to the banks and not reducing your principal balance. You do sound very responsible and can afford your place but there are many others who were depending upon continued appreciation to make their numbers work.

  35. Andy

    Hi Pat, I don’t have my statement w/ me and the online service is down but I’d say roughly 1500 goes to interest and 500 or so goes to principal each month. The 2500 is net including the tax benefit. otherwise it would be 2900 all in. So lets hope the Govt doesn’t take away my mtg deduction! But I couldn’t stand the fact I was having soo much of my pay each year go right to the govt. Its a bit of a pain to file long form but worth it when I get my check each Mar/Apr.

  36. Andy

    Completely agree Pat about those relying on continued apreciation. Especially those who hoped to see Both their salary and home price apreciate. They got a death blow.

  37. JC

    Andy, you dont have to answer if its too personal, but $5k refund seems low.

    Your mortgage is $399k @ 5.5% which means you pay about $20,000 in interest per year (for the first few years of the mortgage) Then you have property taxes of a few grand I assume.

    Is mortage interest not deductible on the state level for certain income limits? What am I missing?

  38. JC

    Pat, agree about appreciation. Financial education should be tought starting in elementary school. 3.5% on an annual basis is the most folks should think they will get, but if you catch a downturn not even.

    I have a few investment properties, and wont even include appreciation in my anaysis. Its gravy if it happens. They are not in high appreciation areas anyway…they are in Rochester NY.

  39. patk14

    JC, I actually think Rochester is a no lose situation. Nice city that didn’t have pricing explode during the boom…your investment will definitely beat inflation over the next decade.

  40. thoughts

    i agree with Andy and have basically the same financial situation as him.

    i think home ownership versus renting something over $2,250 a month makes little sense at all for most (again for most). personally, i always loved owning something and being about to improve/design where i lived. i also ran the numbers. after the tax break and equity (very little at first), owning wins out even if it’s slightly higher at first. that is, if you don’t have to move for a while.

    i think that homeboken is a very angry person. maybe because he didn’t but in 2002/2003/2004/2005 like some? well, from what i see, we’re almost back at those prices.

    you’re all welcome for getting a lively discussion going before the weekend. have a good one!

    thoughts

  41. Andy

    JC, I’m not 100% certain why I didn’t get back more from the feds. I’m sure there are a variety of reasons. But I didn’t hit up against the AMT or anything but it was also my first year and not a full one at that since we closed in April. Maybe thats why. Would absolutely LOVE to get more back this year! I’m doing all I can to max out deductions.

  42. homeboken

    Thoughts – Why would buying a condo in 2002/3/4 make me happy? Tying up a large sum of money at 0% return for 6-8 years, seems like that would make me unhappy?

  43. Recent Buyer

    FINALLY, the blog is interesting again!!

    Andy: VERY impressed with your 100K downpayment. Assuming you’re in your 30’s, that’s pretty impressive. No student debt? Congrats on the purchase.

    Thoughts: You are one weird person. BUT, you make me laugh out loud.

    Patk14: Why not own in NYC w/ that kind of salary/savings?

  44. thoughts

    homeboken – because you what have bought at a good time in regard to today prices, received a tax break for years, gained equity, and owned your own place. see submissions above. if you’re going to stay some place for a while, renting is for the birds. also, i’m sure you did great in the stock market for the past years! that said, from your posts, you sound like you’re struggling – is that why you’re angry?

    recent buyer – thank you, i think. the blog was boring for a while. i thought it died. i had to whip it into shape!

  45. thoughts

    homeboken – just so you understand my point. 0% return in real estate with tax break and equity VERSUS a negative return in the stock market? come on.

  46. homeboken

    thoughts – Don’t start the passive agressive crap. We have differing opinions about the current real estate market. My financial state in the world, good or bad, has nothing to do with my opinion of the market. Stick to the topic.

  47. Andy

    Thanks Recent Buyer. Worked hard to build that up. I do have some student loans but they are manageable.
    I think it was all about the goal setting that allowed me to do what I did. My sister is 5yrs older than I am and was floored that I had saved that much. Don’t get me wrong anyone, there are some days I’m like hrm what could I have done w/ that downpayment instead of buying a condo. But now that I’m hooked I’m working towards building my own little “real estate empire” and looking at places I like going on vacation and could get some rental income out of to help pay for the places.

    Glad we had some good discussion today. Someone else’s turn tomorrow. 😉

  48. stan

    I’m with homeboken on this one. whoever rented from 2005 – present is in a much better position than some who bought in 2005, 2006 2007, 2008 at least now. Prices are still dropping and we just hit 10% unemployment.

    Someone justify and show me how someone who purchased over the last 3-4 years has come out ahead of the person who rented a simlar apartment.

    The person who put down 20% in 2006 has ZERO equity now. Your downpayment is leveraged and the 20% decline here wiped it out. The guys who put his 100k in the market is down (in the neighborhoods of 30% if he stayed invested.) he has 70k in his account (although I would argue that most don”t even invest their dp money, I know I never did.

  49. Lori

    I think you have to look at a few things that no one has mentioned:

    1. – If you are young and choose to buy in Hoboken, there is a pretty good likelihood that you will have changes in your life that will result in a fairly short (people have been talking about 3 to 5 year) time horizon for your real estate investment (get married, have a kid, have another, move to ‘burbs). I see that happen all the time, in fact, it is what helps keep our market solvent. When I first bought I lived in my condo for 10 years. OK – we don’t have kids so two of us could manage in a smaller space. But the difference in your time horizon makes a big difference in terms of your ultimate return on your investment.

    2. – If you do buy and move on fairly quickly but sell in Hoboken and move to Milburn or Maplewood, you may be selling for less than you would have liked here in Hoboken but I bet you have the opportunity to buy in the suburbs for even lower! Those “M” towns have depreciated more and faster than Hoboken has. It doesn’t replace your lost equity but it lets you live here as an owner and then move there as an owner. How many young families really want to live in a rental with their kids?

    3. – Sure, you could say it would have been better to rent in Hoboken, invest the 100k and then buy in Milburn but then you missed out on the mortgage deduction and don’t shelter any of your earned income. Plus, doesn’t anyone give any value to the non-financial aspects of owning? Maybe you don’t believe it if you haven’t done it but I firmly believe there is a big difference between being a tenant and owning your own property. Hasn’t owning property been the basis of wealth in the free world since, um, feudal time? Do you want to be the “lord” or serve the “lord”?

    4. – What if you kept saving, paid down your mortgage, stayed in your home for a decade or two, saved even more, bought investment properties, became the landlord instead of the tenant and collected your rents and were able to retire? Would that not be nice? The idea of saving and building wealth has become an anathema to much of today’s society.

    Maybe I have a different perspective being significantly (I hate to admit this) older than many of you but I see other alternatives out there than living a lifestyle that leaves me with nothing at the end of the day.

  50. patk14

    Good point Stan. If you put $100,000 down on a $600,000 Hoboken condo in 2006 and it now sells for $500,000, you have lost 100% of your investment. Leverage is a beautiful thing when the market is going up but can bite you in the behind in a declining market. A 5% movement in housing prices is multiplied by a 6 factor if you are 80% levered. A 5% decline (or increase) on a $600,000 investment with $100,000 down is $30,000 or 30% of your original equity. That’s why real estate is a great investment when it is appreciating and can ruin you in a declining market (ask Mr. Trump).

  51. jc

    Andy…where are you thinking of making your investment purchases? I have a 9 unit property in Rochester I may want to sell. cash flow positive :)

  52. jc

    Lori…I agree that owning feels a lot different then renting and adds much happiness to my life. I look at my place as my home first and foremost. When I sell I get my down payment and equity back plus if I see any appreciation I’ll take it too.

  53. stan

    “4. – What if you kept saving, paid down your mortgage, stayed in your home for a decade or two, saved even more, bought investment properties, became the landlord instead of the tenant and collected your rents and were able to retire? Would that not be nice? The idea of saving and building wealth has become an anathema to much of today’s society.”

    can’t disagree with this. My point is that the point at which you buy in the RE cycle, is just as important as if you buy at all, in regards to building wealth.

  54. Lori

    My point exactly in #1, Stan. Timing is important. Where you buy and where you sell in the cycle matters in real estate just as it does in the stock market.

  55. Fred Davis

    I think it will become much more difficult for owners to sell after regulations on bonuses take effect. Are sellers thinking about this? Prices are well correlated to income (historically speaking, except for the last 10 years or so), so if incomes move downward, all else being equal real estate should follow. What’s more, prices shot above what incomes could support in this “bubble era” so I would think that the fall would be more pronounced. I think it would behoove sellers not to look to squeeze the last 2 or 3% from the sale price because if they’re not successful, they will pay the price.

    Does anyone know if the market is starting to price in the compensation changes on Wall St? I would think it’s obvious that what was a huge driver on the way up would be so on the way down. How could it be any other way?

  56. Andy

    Hi Fred, What comp changes are you referring to? Nothing has been passed on to employers as of yet and from what I hear in DC Congress isn’t having much success w/ getting people on board for comp limits. Sure I think there will be some clawback provisions but total comp for Wall St isn’t going down. Many companies just gave hefty base comp raises which fixes a larger portion of compensation costs. I think it will impact the extreme upper management to a much greater effect(ie Manhattan and Greenwich CT) than the average buyer in Hoboken.

  57. Fred Davis

    Anybody who thinks comp in not going down is not reading the same newspapers I’m reading.

  58. Andy

    Fred, I’m not sure what you’re reading but would like to get on the same page. I have freinds who work both in the Treasury Dept and I personally work on Wall St. I can assure you that at some major companies the bonus structure is still very much in place and although pools may have shrunk the scary stuff you read about in the news is not in practice except at 2-3 firms. Many firms are making big bucks this year and have been paying back TARP funds. Thats in addition to putting away record bonus accruals. So long as the market doesn’t tank in October-December you’re looking at a very good bonus year on Wall St. It will be more hush hush but absolutely people will be getting paid this year. These firms can’t afford to stiff their good people for another year in a row or risk a mass exodus back into alternative investment funds. You’d be very surprised to see how much things are getting back to normal. Sure many are still unemployed but I think you will see an end to mass layoffs. Many places have already begun hiring again and not at reduced salary levels. If anything those still employed saw a net increase in wages mostly in terms of base salary. I know its contradictory to what you see in the papers but its very much reality.

  59. Fred Davis

    Trust me, a secular change is on the horizon, not a cyclical one. The political winds don’t care how much profits are this year. The G20, of which the US is part, will see to it that comp changes–downward. It’s been an arb for workers and as you know, all arbs come to an end eventually. Will people still get paid on Wall St? Yes, but not at the nonsensical levels of the past…And fewer will make very big money. Employees of firms were getting paid like business owners, except they didn’t put any of their capital on the line like a business owner. This secular change will filter through to the real estate market. If it affects Manhattan and Greenwich, it will affect Hoboken, indirectly.

  60. Laki

    Andy I too work on Wall Street, and Fred is absolutely right. I do not know a single person on wall street who believes the bonuses are back for good. People that did get a big bonus this year consider themselves extremely lucky. The profits we’ve seen during the bubble years were a product of 50-100x leverage in the financial sector. The firms took the profits during the boom years and distributed most of them to their employees. When the bubble burst, they simply offloaded the losses to the US government. If you somehow think that things are going back to normal, and you define the normal as a period between 2004 and 2007, you’re mistaken big time. Also please don’t talk of TARP as if this program alone defines the government intervention in the financial sector. As if paying back TARP means anything. Mainstream media doesn’t necessarily talk about this, but debt guarantees together with asset purchases and REPO lines extended to financial firms amount to several trillion dollars! If US government rescinded every single government guarantee and promised not to backstop any future losses in any of these financal firms, these companies would go under faster than you can blink. Just look at their balance sheets. They have trillions of dollars of assets and so much short term debt to roll and the only way they can do so so is if there is a non-disputed consensus that the US government is not going to let them fail.

    It is clear by now that US government will not do this. They will not let these firms fail. But, this backstop however comes with a price. The price to pay will most likely be 2 fold: 1. The Government will force the firms to deleverage themselves significantly. 2. The government will not tolerate the current compensation scheme. Even if the second one doesn’t happen, the forced deleveraging will ensure it. Once the firms are deleveraged, there simply won’t be enough profits to go around.

  61. Andy

    Laki, I mentioned that the upper ranks of management will not be getting 20+million$ bonuses and rightly so. But the bonus accruals at firms like GS and JPM and other firms are as large as the boom times or larger in the case of GS. How can you say that this money will not be paid out? Will it be in the form of different compensation Yes absolutely. Most likely in restricted stock w/ clawback provisions but will the $$ amounts be cut? I respectfully disagree. I think at the top yes there will be cuts. CEOs can’t command 150mm pay packages so there will be some trickle down but good employees can go work for hedge funds and get bonuses paid entirely in cash. Why would they choose to work at big banks if they can get hard cash at a fund? So the big banks strucutre something that looks to apease populist rage but still rewards its employees so as not to risk them fleeing to hedge funds/asset managers.

    Laki, the only firm that has come out saying it will revise its package was DB and they historically paid only certain areas well. The rest always got less than their peers. Goldman is trying to do the same thing but lets be honest, they have paid the most of any firm anywhere for decades. A small hit for them is a drop in the bucket.
    On the Tarp point, the entire compensation regulation discussion began because the government had an ownership stake in these companies and as such could regulate their compensation. Many have paid them back specifically so that the government could not impose compensation restrictions. Why do you think Goldmand and JPMorgan rushed at the oportunity to pay it all back?
    To your 2nd point, the govt forcing deleveraging I agree to an extent but again you discount the lobbying efforts of wall street. Our government is run by multinational corporations. They can’t and won’t put real changes into effect that hurt corporations. Obama is trying his best but I honestly doubt he’ll be able to tackle Insurance and Wall Street lobbys. As for the effect of deleveraging and lack of profits to go around this is capitalism at its best. Many of the 2nd teir banks needed to be absorbed and many have. Unfortunately this leads to many of our colleagues loosing their jobs. But its a reality of the situation at hand.

  62. Laki

    Why are you picking out JPM and GS? Why not compile the data for the entire financial sector? JPM and GS are only making money now because they can borrow at close to 0%, while half of their competition is out of business and the industry is in disarray. This will not last forever. Once the OTC instruments are standardized and pushed to the exchange, and once the 0% cheap money to wall street is gone, these firms ability to generate profits the way they’re doing right now will go away.

    Also, The hedge fund industry is contracting as well. The small funds are getting crushed and the big ones are consolidating. In order for hedge funds to absorb all the wall street people they would have to expand 100-fold in size. Is this realistic? Further, making money at a hedge fund is a lot harder than making money at GS. GS can borrow cheaply, and doesn’t have to mark to market. Hedge funds don’t have this luxury and the hedge fund money is not sticky either (i.e. run on a hedge fund results in a liquidation, unlike GS which simply borrows from the government). So the frequently used: If I don’t pay them they’ll go work for a hedge fund, is a false argument. 95% of people would not find jobs with hedge funds.

  63. Andy

    JPM and GS are #1 and #2 in the world. Why wouldn’t I pick them? Barcap/BofA/WellsFargo are tied for #3. The rest are small shops or poorly run(UBS/Citi).

    You seem to have a very negative view of financial services. They have always engineered new products and new business models over the years. Easy money is going away and I can reasonably agree with that since spreads will eventually disolve. The best thing that comes from this financial disaster is the consolidation in our industry. Many firms got what was coming to them w/ the exception of Lehman. It was not fair to bail out some and not others. As for consolidation of funds, 8000 at the peak was too many and needs to be cut in half. Many funds are making huge comebacks this year as are many banks. Also, many are hiring back people(citing the MS article on Bloomberg the other week). At the peak we had duplicate and triplicate positions. So many of these job losses were people who weren’t adding value to the organization except to pick up overflow when times were flush. I’ll state that those who are employed typically have a better shot of getting another job than those who are unemployed especially in financial services. Its an unfortunate reality. So its entirely plausible to say that if you don’t pay someone what they rationally think they are worth given some adjustments they will most definately move on to greener pastures. To say that the job market sucks so people have to just suck it up and be happy they have a job is not representative of the reality on the ground. To take no bonus last year for some people was a huge portion of their total comp. To ask them to do so again consecutively is not realistic. I’ll reiterate my point, the populist rage in this coutnry is strong but its too little too late with government regulation. Nothing will have teeth if it even makes it out of committee.

  64. Fred Davis

    Seismic changes are upon us. Populist rage is not just here, but abroad. Wall St and its lobbyists in the past have been able to take on all comers, but never all at the same time which is what they’re facing now. Wall St will not win the battle this time. GS knows they can’t pay out that money. One way (voluntarily) or another (legislation) they will not. Firms are slowly lining up to change so that change isn’t forced upon them, but I think it will be anyways.

    Andy, assume you’re right. That would mean we’re back to the old ways. That in effect would mean that all the upside goes to Wall St and the downside continues to go to taxpayers. Do you think: 1) governments will allow this again; 2) this is sustainable for society?

    There is one thing though that I could see happen. That is, after legislation happens, bankers find a way out of it somehow. But if that happens, the public isn’t totally stupid, and journalists, and all kinds of other people have their eyes fixated on this so it will not escape the examining eye. There would be backlash for any bank that tries this.

    Wall St. is in a corner now. It was bound to happen. It took advantage of an arb that last for two decades plus and it finally burst badly enough where I don’t think we’re going back there. If I’m right, this will see to it that real estate become lower. And I don’t see any substitute to make up for outsized Wall St comp packages. Also, there isn’t enough hedge fund capacity to take on sell-side people, even for the best ones who are qualified to work on the buy side.

  65. patk14

    I believe bonuses will be higher for the Hoboken type financial employee over what was paid after 2008 (whether it was paid in calendar year 2008 or during the 1Q09). But those bonuses will be paid to a reduced number of people who managed to survive the layoffs. As Laki pointed out, banks are borrowing at 0% and making loans at wide spreads due to market risk. Easy money while it lasts. 2009 results will be strong but significant liabilities remain on the balance sheet. Many executives say that they have to pay their stars big money to keep them from leaving. But where are all those “stars” going to go? Hedge fund opportunities are limited and there are less big banks with further consolidation likely.

  66. Laki

    Andy, responding to your comments:

    You looking at GS and JPM alone is what’s called a survival bias. Generating statistics by looking at the sample set comprised of winners alone will produce unrealistic numbers. Look at the entire industry. For every guy at GS that is making good money this year, there is a guy out there who lost his job because his firm went under or it downsized.

    On your other point that people will leave if you don’t pay them well.. In general I agree but the question is what does “pay well” mean and where exactly would those people go? Hedge funds cannot possibly absorb even a modest portion of them. Most hedge funds employ a handful of people – not more than that. You cannot fit an ocean worth of water into a swimming pool. It just doesn’t fit. For every guy working at a hedge fund there are 100s of people working on wall street.

    After you eliminate hedge funds as a place to absorb the wall street guys you’ll realize that there is no other profession that pays as well as finance. So there is nowhere for these people to go even if you cut their salaries in half. Where would a math PhD guy who works as a quant at Goldman go if his salary was reduced to 200K without a bonus? He wouldn’t get more than that at any engineering firm. Where would a bond salesman go if he didn’t get his ridiculous sales commissions? Where else would he be able to make sick money without really having any tangible skills other than networking?

  67. Andy

    I admit I do not have the answers on how to reabsorb the lost jobs in the industry. I don’t see that many coming back but I do believe that many companies got scared and cut too deep. But many who were unable to make it through this cycle w/out loosing their job may want to pursue other career options or accept a lower paying position working in another part of the country. From a revenue perspective the bar was set so low for these companies to meet expectations that many have exceeded their year estimates and were rewarded with stock gains(BAC/Citi/GS/JPM). These guys will definately pay out bonuses this year if they haven’t already. Many paid “retention” bonuses mid year. I think the key is that the compensation isn’t completely disapearing its morphing into something else or changing names to disguise the funds in the annual reports.

    I want to highlight something that Fred points out if major financial overhaul does occur I absolutely guarantee that Wall St will find loop holes around regulations. I hate to point out the obvious but the media in our country is typically late to the game or clueless and the educated public doesn’t fully comprehend the intricate nature of government meddling in the private sector. If people actually listened(read understood) to the media Paul Krugman would have another nobel prize. He’s been screaming from the rafters about financial overhaul as have many. I’m saying Tim is no better than Hank and will take care of his friends. These people need jobs when this administration is over. They will not bite the hand that feeds them and their friends.

  68. Andy

    Pat, just read your bit about bonuses being paid to less people but will be higher. I think that hits the nail on the head. These companies aren’t really increasing their total comp pools but are paying less people more. However, I do quote Goldman and JPM bonus pools as very real examples of companies that are rocking this year and will be flush with cash. They will do what the need to.

  69. lori

    Paul Krugman is my hero.

  70. homeboken

    Lori – Any reason why you love Krugman? Was it his weekly article in the Times? Or do you love his entire body of work?

    If it is a specific piece, please post.

  71. Lori

    I think the guy is brilliant and I agree with much of his philosophy regarding both social and economic issues. Here is one small gem taken from Wikipedia:

    On August 2005, after Alan Greenspan expressed concern over housing markets, Krugman criticized Greenspan’s earlier reluctance to regulate the mortgage and related financial markets, arguing that “[he’s] like a man who suggests leaving the barn door ajar, and then – after the horse is gone – delivers a lecture on the importance of keeping your animals properly locked up.”[96]

    There is a great write up of him there if you want to learn more about his views and accomplishments.

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