NYC Living

5 Ways Bonus Season Will Influence Home Sales in NYC This Spring

With 2017 here, many New Yorkers are now eagerly awaiting their bonuses, which generally get paid out in the first quarter of 2017. While some employees may be guaranteed a bonus as part of their compensation package, the majority of employees are treated by the subjectivity of their firms, for better or for worse. Much of the bonus hype comes from the financial services industry, which has a dominant foothold in NYC. But, it’s equally important to note that many in the city also work jobs that don’t pay any bonus.

In NYC real estate, many would-be home buyers make their decisions based on what they expect to be receiving in bonus pay. Overall, as many real estate brokers know, bonus season has a large sway on the NYC real estate market. With payouts taking place this winter, this spring will be a telling sign of how well bonus season went.

Bonus season could also have a massive spillover effect for those looking for properties this spring. A strong bonus season on Wall Street could mean that many new buyers will enter the market in the spring, which will result in increased demand across the board. Increased competition could adversely impact any would-be buyer looking to get into the market. This bonus season might thrust new buyers into the market, while potentially sidelining those looking to get in.

Here are the 5 ways in which bonuses will influence home sales in NYC this coming spring.

1. Bonuses impact overall net worth

Whether someone’s bonus is $20,000 or $200,000, a bonus payment will result in an increase in one’s net worth. With this increase in net worth come numerous benefits. With the additional cash, the bonus recipient may finally be positioned to have enough money for a down payment, which is often the largest hurdle for would-be home buyers to overcome.

Net worth also has a significant psychological impact on potential home buyers. Many could in fact already buy an apartment, but may have chosen to hold off because they feel they don’t have enough reserves in their account to potentially handle a rainy day. A bonus may help such an individual over the edge and make them feel that they now have enough cash to finally buy a property.

2. Bonuses impact ability to retain financing

When a potential home buyer goes through the mortgage application process, his or her mortgage banker will ask them what their income is, both inclusive and exclusive of bonus. Bonus payments are seen as discretionary, even if the applicant has an expectation of what their bonus will be. Essentially, banks and lenders are hesitant to underwrite a loan based on income that can’t be guaranteed by a fixed salary.

As such, an applicant would have to prove a track record of receiving similar bonus payments in years prior. In addition to helping bump up an individual’s cash reserves, a bonus payment also helps establish a track record, which is equally as important when it comes to financing a property purchase.

3. Bonuses may give a clue to what’s in store for next year

Bonuses are generally accompanied with performance reviews. Needless to say, a good bonus with a positive performance review may be an indication that if one meets or exceeds expectations in the same manner as one did during the prior performance cycle, they may reap similar rewards during the next cycle. This sense of comfort may make people feel confident enough to finally purchase a property, with the expectation that they’ll receive a similar windfall in the future. While a bonus is clearly a boost to anyone’s bottom line, it may also provide a psychological boost which helps people set their own expectations of what they’ll be earning in future years.

4. Bonuses (or lack thereof) may keep people sidelined

Every year there are plenty of employees that were expecting to receive more than they actually do. This results in bad vibes all around and may result in the employee questioning what they’re still doing at the company with which they’re employed. Not receiving the bonus they expected might result in someone sidelining their entire property search altogether. Better luck next year!

5. Surprise windfalls may significantly increase budgets

Sometimes bonus amounts may even surpass the expectations of those with the highest of expectations. When surprise windfalls take place, it may result in would-be home buyers significantly increasing their purchase budgets. Real estate is ultimately part of the investment diversification mix, and instead of keeping their cash in a bank account or tied up in other assets, these individuals might prefer to double down on their real estate purchase. Not a bad move for NYC buyers, where the market has been moving with double digit growth year after year since the 2008 mortgage crisis.

Overall

With bonus season upon us, this spring will surely shape up to be eventful. Whether you’re on the receiving end or not, many other factors, such as interest rates and inventory, will continue to shape the real estate market going into 2017.

Related:

Bernard Klein

Bernard Klein is the cofounder of Blooming Sky, where he works with clients to buy, sell and invest in real estate across Manhattan and Brooklyn. When he's not looking at properties with his clients, he's seeking out the best vegetarian food across NYC with his wife and can be found writing content for his New York City real estate blog.