A Recipe For Higher Prices?

It was a long, shaky summer for the credit markets. The media seized on a crisis and redundantly played the story over and over and over as if smelling and selling to fear. The National market has hit the skids in a big way. New home sales numbers are dismal, so dismal in fact, some on Wall Street are calling it a bottom, just because they cannot conceive of any numbers that could be worse. Mortgage rates popped, especially for jumbo loans, only exacerbating the problem. Many have begun using the "R" word in reference to the national economy, many blaming the housing market as it's eventual cause. All the while, the New York, specifically the Manhattan market has held up, virtually untouched. For the past year many have wondered, can the New York market possibly weather this incredible national storm? Thus far it has. Not only has the NY market held up, in many ways it has gone in the complete opposite direction. Inventory, as tracked by Johnathan Miller Associates (quoted on Curbed.com) has dropped 31% year over year, while average prices in Manhattan have leaped to an all-time record $1,370,000.. Can we weather this storm? We have so far, and indications are getting clearer that we will. Here is part of my reasoning:
1- I might as well start with my whopper- Wall Street bonuses will be higher this year than last. This may go against conventional wisdom, but here is my thinking. Last year, Goldman Sachs accounted for 60% of all Wall Street bonuses ($16.5 Billion of the $23.9Billion total). Goldman Sachs is having a terrific year, above estimates every quarter, and year end earnings are expected to grow by at least 22%. Add 22% to last year's bonuses and you have over $20 Billion in bonuses for 2007 from Goldman alone. Therefore, if all four of the rest of the big 5 Wall Street firms were to cut bonuses in half, you still come up with a number over $24 Billion, higher than last year. I believe that there is upside to that number. As we all learned as 2006 turned to 2007, Wall Street bonus money is a huge stimulus to the real estate market, and I would expect little difference this time around.
2- The 30 year jumbo mortgage rate is trending down. After a pop to 7.25% in August, the average rate now stands at 6.875%. While the spread between jumbo rates and the 10 year t-bill has narrowed, there is still a long way to go. The Libor rate has dropped by 1/2 of a point in the same time frame, and commercial paper yields backed by mortgages have dropped 1%. With another fed cut likely before the end of the year, and a slowing national economy, it looks like this trend will hold, and 30 year Jumbo rates should drop to 6.5% and possibly less by January.
3- The dollar is still at historic lows and continues to draw overseas investors to NY real estate.
4- Inventory, as mentioned before, is very low, so there will be more money chasing fewer apartments.
So there you have it. Barring some extraordinary event or crisis, you have a solid recipe for price appreciation in the near term.