House purchase or new construction - What is financially feasible?

An additional experience:

We were in a similar situation a few years ago. Back then only 1 child (now 2), slightly lower household net income, but more equity. Prices are similar to ours. We are more the "experiencers," often on the move on weekends and during holidays, or generally in everyday life. Vacation also has a high priority for us, although since 2018 (2019 birth of child 1) we haven’t flown privately anymore but have traveled a lot within Europe. Plus lots of sports and other activities. This means there isn’t really much time left for a house, especially not with the two little ones (2 and 5 years old) – you basically always have at least one of them hanging on you (no family here) and hardly get anything done.

We then bought a house in the city and renovated it (or rather: had it renovated, our own work was maybe 5%), with a large garden. This year we managed in the garden: two 7m^3 green waste containers from garden gutting. Planted a few new shrubs and trees. Dug up about 80sqm of area and sowed new lawn/flower meadow. Regularly mowed the lawn. That’s about it overall. Currently, of course, we still have the furnishing stuff inside; when that decreases (just installed a new wardrobe yesterday), there will be more time for outside.

The big difference I see with you is in the workload: We both work 57.5 hours a week. And besides that my wife was "off" until August (the little one has only been in daycare since spring) and I also took parental leave in May. That means: With only one hour a day, probably exactly lawn mowing would have been possible, and the rest would become overgrown or have to be made expensive. If I only had one hour a day, I also really wouldn’t like to look at the garden and then say "oh, I still have to do that too"...

Update: We have now found a nice 900sqm plot on the outskirts of the city. Currently, we are in the final stages of negotiation with a local property developer. A 157sqm house with a double garage, photovoltaic system, and more according to our wishes. Overall, we are looking at about €970,000 (all in, notary, realtor, land, house, terrace, garden, garage, etc...) A hefty price for a "normal" house on the outskirts of a big city. Since the bank agreed, we can cover a large part of the capital requirement with our 1.1% interest from 2020 and only have to finance about €260,000 now at about 3% interest. We can handle that (about €2,600 monthly installment) and stay within the golden one-third rule of available income. The next 1.5 years will be tough with the burden of interim financing, but it is finally happening.

Until retirement, the house will cost us an estimated €1.1 million in assets (house value + capital versus apartment value + capital) due to the additional loan interest and the interest income I miss out on (calculated with historical values from the MSCI World).

After a family council meeting, we nevertheless decided to go for the dream of the house and now just have to sign.

Whether the decision is right, whether the income is secure/stays secure, whether the German economy survives, whether we stay healthy, etc., we do not know. The thought of soon playing in the garden with our children, having space in the house for guests, raking leaves, and mowing the lawn currently feels right to us.

Thank you for your good advice and factual and psychological tips.