Wall Street bonuses are the fuel that drives residential real estate in lower Fairfield County, a high-end market in Connecticut where single-family homes can list for as much as $40 million.
But with bonuses on the Street projected to fall by about 5 percent (and possibly more in some cases, according to New York consulting firm Options Group), lower Fairfield real estate agents wonder how the market will fare, especially if the credit crunch extends.
Towns such as Greenwich, Darien, New Canaan and Stamford have long been preferred locations for hedge fund managers, investment bankers and traders looking for suburban homes away from the Manhattan bustle. Agents estimate that Wall Street types make up as much as half of their yearly clientele, and are often among the buyers of the most expensive homes on the market. Outside of Manhattan, these towns probably have some of the highest concentrations of Wall Street executives in New York City’s metro area, brokers say.
Timing of bonuses critical
Typically, Wall Streeters will already know the value of their bonus by the end of the year and start shopping in January, driving sales for the next six months. This leaves the region’s property deals closely tied to the market’s booms and busts.
“We have always been impacted by the results on Wall Street. There’s a direct correlation,” says Bill Andruss, a real estate agent for Sotheby’s International Realty in Greenwich. “Many years, the bonuses are the reason some of these homes sell.”
The record bonuses of last year did not go unnoticed in the lower Fairfield County market, which largely consists of single-family homes. The average price for the whole county in the second quarter of 2007 was $836,300, a year-on-year increase of nearly $100,000, or 13.5 percent, according to the county’s Multiple Listing Service. (Reports by Prudential Connecticut Realty showed lower figures.) This was likely driven by a rise in higher-value sales in towns such as Darien, New Canaan and Greenwich, brokers say.
Sales still up over last year
While sales figures going forward may show the impact of the credit crunch, the number of high-priced homes sold in some markets is still up significantly compared to last year.
Over the $3 million mark, Darien has seen 39 sales through September this year, compared to 25 in the same period in 2006, according to the Darien Multiple Listing Service. Of this year’s purchases, the top five had a total value of $46,200,000, up 41 percent from last year.
The bonuses were a major factor behind this year’s “roaring” business, says Doug Werner, broker for William Pitt Sotheby’s International Realty in Darien. “I’ve heard rumors about the lower bonuses,” he says. “It’s not good news.”
New Canaan has already seen 43 deals greater than $3 million closed this year, compared to 27 in the same period in 2006. In Greenwich, the top five sales for 2007 so far total more than $89 million, up nearly 28 percent compared to 2006, and more than 14 percent higher than 2005, according to their respective multiple listing services.
But as bonuses look to dry up this year following the late summer credit crunch, so may sales.
“A lot of purchases are directly contingent on the bonuses, so if there is a decline we would see an effect,” said Tom Hanson, a Country Living Realtor in Darien and Stamford. “Wall Streeters have the discretionary capability to hold off.”
Psychological barriers
Those Wall Streeters who are on the front line of the economic downturn are among the worst affected by the negative psychology in today’s economy. For Charles Magyar, a Greenwich broker and managing director for William Raveis Real Estate Company, negotiations with buyers from Wall Street have become more difficult.
“They’re inundated with doom and gloom in their day-to-day work,” he said. “They’re seeing all the negative stuff. So when they come to buy a house, they’re very tough.”
This toughness is reflected in lower Fairfield County’s inventory levels and the length of time houses stay on the market, both of which are currently higher than usual. In Darien, there are now 46 active listings over $3 million.
‘Clearly a hiccup’
“We have a year’s worth of inventory and only a quarter of the year to go,” says Werner. “It’s usual for there to be a seasonal slowdown in summer, but this is clearly a hiccup in the normal pace. Everyone’s a little concerned about that.”
The average time on the market for homes in all price ranges in New Canaan was 131 days in the second quarter of this year, up from 104 days in 2006, according to the Consolidated Multiple Listing Service, Inc.
Magyar reports that the average time on the Greenwich market has increased from 95 days for the first six months of last year to 124 days this year.
“The inventory is something that continues to be an issue,” notes Andruss. “When sellers really want to sell, they may have to take another look at their price and consider an adjustment.” He reports 140 downward price adjustments in the last two weeks as many sellers have become more determined to find a buyer before Thanksgiving.
Nonetheless, some lower Fairfield County brokers remain hopeful. Magyar remembers previous years in which bonuses were significantly lower — in 2001 and 2002 following the tech bubble burst of 2000, and after the collapse of Long Term Capital Management in 1998. While the downturns in those years impacted lower Fairfield County, its high-end homes continued to sell.