Should you buy a NYC home because of higher interest rates?

The Fed raised interest rates again today; the second time in the past three months. Whenever something like this happens, mortgage brokers and realtors, suspiciously in unison, begin to loudly proclaim that now is the best time to buy in New York City, before rates go much higher. Of course, this was the same battle cry the last time rates went up (or down), and I can assure you the same will happen no matter the direction of interest rates. We all have to feed our families and there’s no shame in what they’re doing. But I’m more interested in what’s behind all of this. Why the constant frenzy?

For the past month, potential clients call and ask me if this is a good time to buy. I tell them I haven’t the faintest idea (I don’t) but that they should also look to “why” this is a time to buy at all. Why are you buying real estate in the first place? Is it because you’re starting a family and need more space? Is it because you’re just starting out and believe owning your own place is a source of pride? Or is it because you think you’re missing out on something (FOMO is an actual cognitive bias). Posing the question is perhaps not the best way to be retained, but I’d rather they get an honest response out of me rather than a canned “YES, BUY NOW, FOR THE LOVE OF GOD WHY ARE YOU EVEN WAITING UNTIL TOMORROW? GET IN THE CAR!” But, I digress…

In 1989, my parents, immigrants with barely enough knowledge of the English language to get themselves employed, bought a Brooklyn co-op apartment for the grand sum of $63,000. Big money at the time, especially for them. A 2 bed/ 2 bath, measuring about 1100 square feet with a balcony that was just wide enough for two chairs and a tiny BBQ grill. Somehow they were able to raise two kids in that 1100 square foot apartment and we never felt as if we wanted for anything. No dreams of huge houses, swing sets, 5th bedrooms, man caves or flat screen tvs. We didn’t even know we should want the things we later were told we should want. We had enough to know we were lucky.

Times change. Cheap money has allowed us to buy homes that are, on average, 1000 square feet larger than they used to be, to house families that are much smaller than they used to be. Those extra bedrooms need extra furniture for “guests” who will likely never come over in the first place. They need extra TV’s for people to watch. They need extra heat to warm them and extra AC to cool them down. Those empty rooms force us to work longer and harder than we’ve ever worked to pay for them. This is kind of silly, isn’t it? Why do we keep doing this? Who wins in the end?

If you want to talk about how interest rates will increase your costs of borrowing and force you to buy something smaller than you would have before, that’s fine. That’s probably true, though you may also have a corollary drop in prices to balance things out. Still, you may want to ask yourself if “smaller” is such a bad thing in the first place. Do you really want what you think you want? Or is everyone just telling you that you should want it?

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