Purchasing_a_New_Home

Purchasing a New Home XECO/212 April 18, 2010 Janet Hunter Purchasing a New Home In today’s economy buying a new home is a big decision. A person has to ponder on several different things in order to make the right decision. One has to think about the 10 principles of economics, the economy as a whole, government spending on the economy, the marginal costs and benefits, and even what role the future of the economy will play towards this decision. With all these things in mind one has to consider that the buying of a new home should be put on the waiting list, until things start to come up. The first thing to consider is the economy itself. The economy plays a big role in the purchase of a new home.  If the economy is weak and the unemployment rate is high then people are less likely to decide to take the big leap in purchasing a new home.  When the economy is strong, there are an abundance of job opportunities for people.  Buying a house is a big step.  It is a great financial burden to those who are not wealthy and can buy outright.  Most have to finance, and this means, depending on their credit, a large monthly payment.  With this payment, a person needs to know that his source of income is steady and have no fear that at anytime it could be taken away from him or her.  Keeping that in mind, if a potential home buyer feels that he or she could not be able to make the mortgage payment due to the weakness of the economy they probably detour away from that and put it off to the near future when the economy becomes stronger, and jobs are more secure. Another thing to consider within this economy is the fact that the government is trying to remove the new home tax deduction. This is a big incentive that people look forward to.  They look forward on this helping with possibly enlarging their return.  Then with that return either pays more towards the principle of the house or putting extras within their new home to upgrade it.  So with the removal of this may detour several buyers because they will have to rely of the money out of their pocket with no help from any earned income credits. Government spending and taxes also can effect a potential buyer’s decision to buy a house in that if taxes are higher, then that is a higher cost that they will have to pay on their new home.  As far as government spending, when the government spends more money they will do whatever they feel necessary to retrieve that money back, and that means more taxes as well.  Not only in the housing market but within other areas as well.  So with the increased taxes, a person would have to make more income to be able to keep above water to not go into debt on their current bills, so the extra cost of buying a new house get put on hold and becomes something that can happen in the future once the economy raises and taxes or pay wages goes up. Another thing to consider is which of the 10 principles of economics are used to make one’s decision in the purchasing of a new home. Out of the 10 principles of economics, the one that plays the biggest part is principle 4.  This principle has to do with incentives. Although 4 plays the biggest part, principle three is just as important. When deciding to buy a home, a couple has to determine if they can afford it. For example, in today's economy there is a lot of different factors that influence the price of houses.  One factor is the economy itself.  With this country being in a recession there are a lot of bank foreclosed homes.  These banks want to get rid of these houses, and therefore are auctioning them off at a fraction of the cost.  The catch is they are selling them "as is".  So what this means is you buy the house as is stands.  So you have to take into consideration how much damages the property has.  This will determine if the house is worth it.  Another thing that can influence the mortgage rate is a person's credit.  In this recession, everybody has some type of bad mark on their credit, and the lending companies know this and there for target these people for the high interest rate.  It is a gamble anytime you buy a home, especially in a recession when you never know if you will have a job or not. They have to decide if the benefits out way the costs and expenses.  This is principle 3.  A couple has to determine if the area is suitable for their new family, the location is right so that there is not a high cost to commute to work, and what the incentives are. Here is where the interaction comes into play.  Once a couple has determined a few houses that they like, now they go back and forth between the realtors to see who is going to have the better deal.  Which house will have the right cost and the best incentives, as well as what kind of upgrades to the home is the realtor going to offer.  The incentives can be location close to school, or great neighborhood and neighbors, great property, close freeway access, and what is the realtor willing to throw in to the sale.  This can be either a higher quality of carpet, flooring, cabinets, stuff like that.  Once the couple has the right price and incentives they like, here is where the really have to decide if the marginal benefits out way the costs.  If they do then they will be more than willing to sign the papers.  If they do not then they have to decide if those extra costs are going to be worth it, and if they are what are they willing to trade off in order to afford those extra costs.  This is principle 5.  So as one can see even though I think principles 3, and 4 play the biggest role all 10 of the principles will take some part in the decision making of buying a new house. In the economy a lot of factors can influence it’s strength. One of those factors is international trade. International trade affects the economy when the government gets involved and decides to put some sort of restriction, like a tariff, on trading. When a tariff is imposed two things will happen.  One will be the benefits.  The government will gain from the tariffs.  The government collects on part of the loss to the consumer surplus.  The producers will also gain from the tariff as well.  Since the cost of the good will go up the producers will make more money and therefore be able to make more product and in return make more profit.  The other thing that will happen from the imposed high tariffs will be the loss to the consumer surplus that is not recovered by the government or the producers. Because of the higher price the demand for that good will decrease, and therefore the domestic consumption part of the loss to the consumer surplus will be lost.  With the higher price paid for the good and the increase in the money that the producers are now making, they will be willing to make more of the goods.  The Producers see the opportunity to make a profit and forget about the other products.  The economic value of the good will decrease, but because they are making more profit the producers keep making more, instead letting the good continue to be imported and make the other goods that should be being produced instead.  The resources that are used to produce the goods will continue to be misused if tariffs are imposed.  I think the government does not care about this and is only thinking of the extra money they will make with a tariff attached to the goods that are being imported.  I feel that a tariff will not only affect our economy in a bad way, but might get the other countries that trade with us to add a tariff to their goods in which they export to us.  Then the whole economy will be effected not just the international trade sections. With these particular decisions to be considered, and taking into account just how bad the current economy is, the purchasing of a home is now on the priority list. There are just too many negative factors in this decision. So I have decided to put a purchasing of a new home on hold.