The Insider

The Insider: “It’s the Interest Rate”… Really?

By July 22, 2022 No Comments

Over 2,100 SF of outdoor space (!)
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As I’ve written before, New York City is subject to different market forces than other places, mainly because of the amount of wealth required to buy here. Because of our price point ($2.15M average price in Manhattan as reported by the 2nd quarter Elliman Report), purchasers have larger loans and are typically selling assets to fund their home purchase. With the S&P 500 down 800 points since the beginning of the year and interest rates up, we’ve been hearing some clients thinking of putting their purchases on hold because of these two factors.
Let’s break it down. Starting with interest rates, how high are they, really? If you look at the headline numbers in the press or go to (for example) the St. Louis Fed’s website to look at the national averages, you would be right to be alarmed:
—PBS News Hour
But NYC isn’t really a conforming loan market, which would entail loan amounts under $647,200 for a co-op or condo. We are a jumbo loan market, which for loan sizes above the conforming loan limits is quoted by Greg Socha or Wells Fargo as of this morning are coming in at 4.50%.
Gregory A. Socha
Private Mortgage Banker
NMLSR ID 62414
Wells Fargo Home Mortgage
150 East 42nd Street 32nd Floor | New York, NY 10017
MAC J0161-313
Tel 212-214-7762 | Cell 917-327-5492 | Fax 866-369-2219
In my view, a 4.5% 30 year fixed rate is still pretty darn low and oughtn’t to deter anyone in this price point from purchasing.
The story with the stock market is more nuanced. As everyone will have noticed, the first half was disastrous in stocks, with the worst six month performance since the Great Depression. Yeah, that hurt. But when stocks have performed this badly, they tend to bounce back very significantly in the second half:
“We believe the fundamental risk-reward for equities will be improving as we enter the second half of the year, with growth-policy tradeoff likely to turn, from both sides,”
— Dubravko Lakos-Bujas, Global Head of Equity Macro Research at J.P. Morgan
If you are looking for everything to line up perfectly, then, for your real estate purchase, apparently you are waiting for this scenario:
  1. Before the end of the year, interest rates start coming down again
  2. Stocks explode, making you feel rich again
  3. The real estate market tilts into a buyer’s market so you get a cheap entry point
  4. We briefly tilt into a recession, giving employers the power to force everyone back into their offices, which would be good for NYC, but then the recession goes away so you can feel confident about your real estate purchase
  5. The war in Ukraine ends, Russia plays nice, and China stops saber-rattling over Taiwan
  6. Pfizer miraculously discovers a universal vaccine for every viral antigen that has no side effects and requires one shot.
The truth is, there is never a perfect time to buy an apartment. These questions are always relevant, however:
  1. Would a different apartment improve your lifestyle substantially?
  2. Can you afford it?
If the answers to those two questions are “yes”, then consider blocking out the noise and realizing that if you are buying for the medium to long term you will, with a high degree of probability, make money on your property.
Have a great weekend, everyone!
Mark Chin

Author Mark Chin

C.O.O. of The Rubin Team, Mark has his BA from Columbia in Economics and Philosophy. He got his MBA from NYU Stern School of Business in Finance and Statistics. He has been a stockbroker, derivatives trader, dotcom entrepreneur, M&A executive, a successful real estate agent and CEO of a major NYC brokerage house. He now runs the Rubin Team with it's eponymous head as Chief Operating Officer.

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