A New House- To Buy or Not To Buy
March 6, 2011
A New House- To Buy or Not To Buy
Many times the way we act and the decisions that we do from day to day, are affected by economics. We use, without realizing it or realizing it, economic theories to aid in whether I make a decision or I do not make a decision. This can also be said for decisions such as to purchase a new house. This paper will evaluate how economics affect one’s decision to purchase a new house.
The decision to purchase to a new house is not an easy or small decision. It is considered to be a milestone and can be a lengthy decision to make. The reason for this falls back on the price of a house, how much you ...view middle of the document...
In this case, a large portion of one’s savings would be used when purchasing a new home. The tradeoffs in this case would be that the things they could have done with the savings that the spent to purchase the house. There are many other thing that the money that would be used to purchase a home to be used on. It could be used on buying a new car, going to college, sending a child to college, vacation, and so many other things. Due to this being such a major chunk of one’s income and/or savings, one needs to really think about the pros and cons in purchasing a home. One would want to think about the benefits of purchasing a new home which would be a new environment, assuming that it is a new home it would be cleaner which would be beneficial to your health, possibly larger space, more storage, and many other benefits. Some possible cons could be being responsible for all upkeep and repairs, mortgage payment could be higher than rent, additional costs such as homeowners insurance and many other things. Having said this, a person will only decide to purchase a home when he or she is fully ready to accept all the advantages and disadvantages that come along with making this type of a decision. After all it is not like buying a pair of jeans and deciding they just do not fit right and take them back to the store.
The next principle I will use to apply to the decision to purchase a new house can be found in Principle number 2: The Cost of Something is what you give up to get it. In this principle the text mentions “opportunity costs”. The text describes this “The opportunity cost of an item is what you give up to get that item (Mankiw, 2007).” Opportunity cost refers to the value of the next best alternative which one has to give up. This would include both explicit and implicit costs. Explicit costs, in the case of purchasing a new house, mean the total amount of money that one would spend on a new home. With implicit costs, this covers all the non-monetary costs. For example, it could be things like, familiar (maybe even good) neighbors or even the loss of bonding time should the choice had been a nice family vacation. Marginal costs and benefits will be the next principle of economics we will be applying to the purchase of a new home. When one is in the position of making a decision, the decision will only be made if the marginal benefits are greater than the or at least equal to the marginal costs. In this scenario, some marginal benefits that could accompany the decision to purchase a new home could include being in a better area, closer to school or in a good school district, and local services. Another principle of economics that I would apply to the decision to purchase a new home would have to be the incentives in which one is presented with. If one was to purchase a new home, for example, they could be entitled to a tax credit reduction. Another incentive would be the first time homebuyer tax credit. However, there can be a downside to...