A New House Decision I have considered purchasing a new home; I am going to involve all the 10 principles of economics in my decision to see whether it is the right time to buy. The most important part of purchasing a home is the financial area with income, taxes, and annual percentage rates. If you are not prepared to give up something to get something then it is not the right time to buy. I have to remember even though the APR’s may be low and I have my down payment or even if I am using HUD as a first time buyer to eliminate closing cost or no fees at all there may still be one depending on my situation.
Purchasing a new home is a big step not only the financial part of if but also the area I chose and the economy at this point and time. I must think ahead to how the economy will be now and later, as well as the housing area I chose. * Will the neighborhood be a good choice for my kids * Will my house be a smart investment in terms of efficiency and equity There are nine steps when buying a home: 1. Figure out how much you can afford 2. Know your rights 3. Shop for a loan 4. Learn about home buying programs 5. Shop for a home 6. Make an offer 7. Get a home inspection 8.
Shop for homeowners insurance 9. Sign papers I need to determine if a recession will place my decision in purchasing a home the wrong time to buy. A recession could cause job lose and no income to pay my mortgage or even placing me in default to take out a loan on my home. Taking a loan on my home to make ends meet would cause me to pay double for my home and never actually own it. Trade offs are important when purchasing a new home because you have to be willing to give up miscellaneous items to get where u want to be, extra expenses are not a good idea when purchasing a new home.
I could consider a yard sale to get rid of old items to replace them with new items for my new house or just to maintain household needs during the closing time. Every penny counts I want to have a separate account that I will not go into for any reason it will be called “Our New Future Account” this is important in order to meet my goals. Trade-offs are simple one must decide if giving up your Friday nights for overtime instead of going out, is the extra money worth it. Of course the more Fridays nights you give up the more money you have for one great Friday out with the family.
Since resources are scarce and we cannot have everything that we want, tough choices must be made. The concept of opportunity cost reminds us that every time we make a choice, something else must be given up. Economics provides us with a set of tools that can help us to make better choices. Often times, the best decision is made by weighing the marginal benefits against the marginal costs. (Sorrel) Economic theory is often based upon the philosophy of utilitarianism. The foundation of utilitarian philosophy is “the greatest good for the greatest number. In other words, utilitarian philosophy suggests that decisions be made with the ultimate objective of maximizing societal welfare. Sometimes this choice is easy. For example, when deciding what type of new home I want to purchase, I should purchase the one that I like the best given my tastes, so long as it is within my budget. (Sorrel) Marginal Analysis and Utilitarianism Marginal Analysis is one of the key tools used in the economic way of thinking, it is useful for: * Cost/Benefits analysis * Evaluation economic efficiency Maximizing Profits/Utility The Principle of Utilitarianism * Marginal Analysis is based upon the principle of utilitarianism which argues that the guiding principle to decision making is to achieve the greatest good for the greatest number regardless of distributional issues. * The point is to maximize societal utility or satisfaction. If a project or reallocation of resources results in a net gain to society, then it should be undertaken * Utilitarianism can be a useful tool in a diverse society where individual values are very different. Sorrel) If I decide to purchase a newly built home will prices be high because there not selling as fast rather than purchasing an old home in the same area where there is only one profit to be made by the seller. Current economic factors that may be signaling recessionary conditions in the U. S. economy could undermine confidence of U. S. dollar-based assets include the downturn in housing, turbulence in the equity markets and job woes. Additional interest rate cuts by the U. S.
Federal Reserve could further erode the return of investors as lower interest rates may produce additional inflationary pressures, lowering the dollar’s value. Also, continued budget and trade deficits tend to weaken the U. S. dollar. The weak dollar is encouraging foreign manufacturers to set up factories in the U. S. , bringing jobs and other economic benefits. The U. S. has the biggest impact on the global economy and its monetary unit value, and fluctuation has the greatest effect relative to other currencies.
The value affects company profits, budgeting and manufacturing costs. It has ramifications on capital investment, plant openings and closings. For example, some companies that have outsourced customer service and call centers to India have returned these centers to the U. S. , since the weak dollar has eroded the cost benefits of operating overseas. (Yahoo Answers) As you can see, International trade is detrimental to our domestic economy as it decreases the power of the dollar which in turn affects your ability to afford things at reasonable prices. Yahoo Answers) When factoring all this into my dream of purchasing a new home I am sure it seems it just may be out of reach for me at this time. The solution is for Americans to start consuming less and producing or rather innovating more. Instead of spending $500 billion on developing an apocalyptic defense systems, money should be spend on providing access to education so we can ‘create’ value that others will have to depend on for sustenance thus creating jobs, strong industry, and a strong dollar. (Yahoo Answers)
Going back to the beginning of my paper where I discussed the nine steps plays a big role in purchasing a new home. Of course my credit and income is the number one factor right now during this recession because you never know what is going to happen. Even though it is a good time to buy a home while APR’s are low my job is not stable, considering GE is laying off people left and right I don’t know If I will have a job tomorrow. My credit is in good standing but that does not mean it will stay that way.
My bills could get past due and cause my credit score to drop which would tell lenders not to loan to me. I am a single parent and struggling to make ends meet now so purchasing a new home in this economy would not be a smart decision. Even individuals employed in the military are struggling which is uncommon considering they make double when sent to Iraq that says something about the economy on its own. A two person household income during a recession is the best move I think because at least you have each other to lean on if you lose your job.
There needs to be some sort of backup plan for expenses. Not only do you need down payment money for a new home you need money for insurance you must have homeowners insurance before signing. There are many factors that play a role in purchasing a home and one should know their rights before making such a big decision. Renting is in my best interest at this time if I lose my job and cannot pay my rent I face a possible eviction with small court cost and unpaid rent during the life of the lease. If I purchase a home and cannot pay I face foreclosure and a big drop on my credit.
I have a better chance paying off an eviction and fixing my credit vs. cleaning up a foreclosure. Here are precautionary tips for home buyers in a housing recession: * How Defaults Hit Market Value Mortgage defaults affect home values. Nearby homes often feel effect of foreclosures, especially if many foreclosures have been filed. How to help an appraiser use the right comparable sales when selling a home in a neighborhood faced with recent foreclosures. * Drawbacks to Buying Foreclosures The condition of homes purchased at auctions or trustee sales.
What can a buyer expect and prepare for when buying a home without an inspection. * Stripping Foreclosure Homes Fixtures are real estate because they are not personal property; they are affixed to the land, to the house, which means fixtures stay with the house. But that doesn’t stop some desperate home owners from smashing walls to rip out Romex wiring or copper pipes and selling them for scrap in back alleys. * Ways to Lose Your Home Whenever a housing recession hits, the crooks crawl out of the woodwork. How not to fall for gimmicky schemes.
Top home buying and home financing mistakes, and how you can avoid making a home buying mistake. * Buying Fixer Uppers Some of the lowest-priced homes will be those that require extensive repairs. Here is how to buy home that needs fixing up, and how to tell the difference between a major rehab or a home that requires small cosmetic fixes. (Weintraub) I struggle with day to day expenses and have a hard time putting up for later. I mean if my car needs new tires I don’t have the money to get them today. So purchasing a house would not be in my budget until I learned of to put up for a rainy day.
If you really are not a person that can budget then you can cause great financial hardship to the economy. It’s like a chain reaction if you don’t get paid then the mortgage company don’t get paid and bills just pile up causing bankruptcy’s and much more. It doesn’t just involve you so having all the principles laid out would be a smart thing to consider when buying a house. You shouldn’t purchase something in a neighborhood you don’t like or in poverty areas that are heading towards destruction try to always have everything you do related to money turn out as an investment and you will come out on top.
In conclusion my decision would have long term financial effects because I am a single family with only one income struggling to make ends meet. Even with HUD helping me as a first time buyer in closing fees and finding cheap homeowners insurance would not help with my new bills. I would need extra money for water, trash, yard maintenance, lights, and insurance and small house repairs. On top of all these new bills I will have a mortgage payment. So is it the right time to buy for others could be, however in today’s economy for me not a smart decision.
References: Buying During a Housing Recession About. com Elizabeth Weintraub 2009 http://homebuying. about. com/od/buyingahome/qt/012108_HseReces. htm Economy and International trade Yahoo Answers August 2009 http://answers. yahoo. com/question/index? qid=20090823111535AA9WHhA Home ; Communities “Buying a Home” U. S. Department of Housing and Urban Development March 26th 2009 http://www. hud. gov/buying/ Marginal Analysis Sorrell Humboldt education September 3rd 2009 http://sorrel. humboldt. edu/~economic/econ104/marginal/