The Federal Reserve released notes last week indicating that interest rates will not be increasing this quarter. Why have all the media outlets been covering this decision for the past week? Simply put, interest rates impact everything from the equity markets to the New York City real estate market.
So what does this decision mean for you, as a potential homebuyer? You'll continue to benefit from low interest rates on mortgages. Low interest rates mean lower payments. Score! But not so fast...The low interest rate environment is also promoting the rapid appreciation of property across NYC. Lower interest payments means you can theoretically finance a whole lot more than if rates were high. With that in mind, and applying the forces of supply and demand, housing prices will continue to stay at record highs.
Since the last recession hit us in the late 2000s, we have seen an era of quantitative easing, whereby interest rates have been pushed down to near zero. This has resulted in cheap money, which has allowed the real estate market to make a strong comeback. When mortgages are cheap, real estate gets more expensive. When mortgages become more expensive, driven by increasing interest rates, real estate prices naturally cool off. Fear not, as rates will remain unchanged.
Larger concerns for NYC real estate will involve the local government’s desire to continue increasing taxes across the board. Tax assessments have gone up across the entire city. Higher taxes result in lower real estate prices as it increases the cost of living in the given property. Additionally, there has been an overhaul of the 421a tax abatement, which was meant to spur development by reducing the developer's tax burden. It also helped make apartments more marketable by allowing buyers to benefit from the lower tax bill. New 421a developments are a rarity these days. Additionally, the mayor has proposed an additional 1% mansion tax on properties over $1.75M.
…And you thought interest rates were your biggest concern?
The decision to not increase interest rates were driven by several key factors. One of them being the current state of the economy. We are still in the midst of a recovery with things going relatively well. Why take a risk now and slow things down? Additionally, volatility in global markets such as China and political instability across other parts of the world influenced the decision to keep rates low.
With that being said, take a breather...until the the Federal Reserve is set to meet again at the end of the year.