A New House – Decision
August 14, 2011
Purchasing a home is one of the most vital choices one can make in their life. It is an exceptionally suitable area for the principles of economics to be taken into account to bring forth a good decision. This method calls for evaluation of marginal benefits and marginal costs. It also demands that one would consider their individual pros and cons attached to the decision. Personally, one would take their own family’s needs and welfare into thought during this course in their lives.
Five of the principles well suited to the guiding of a home purchase are: “People Face Trade-offs”. Most people have to ...view middle of the document...
Mortgage payment for this price house is $1,300 per month and one is paying only $900 a month in rent presently, then one would have to decide if acquiring ownership of a house is worth the extra $400 a month. Further expenses that include homeowner’s insurance and any extra utilities will also have to be taken into account in this economic measure. This will be part of one’s marginal benefits evaluation.
The trade off that has to happen to make one decide to purchase a new house will be the advantage of the move need to be more important than the monetary costs of the purchase. Looking at a house that’s near the children’s schools and near local services. This will make the cost of gas lower and lower the time that one would spend in traveling every day. One would be
able to enjoy their family longer everyday and rise ones quality of life.
The larger cost of a house on a monthly basis should be a smaller amount of these marginal cost advantages. One should also weigh the fact that additional funds they have to lay out monthly on a house will restrict their buying power for other goods throughout the life of the mortgage loan. In this situation, the marginal costs amount to the rent as opposed to mortgage as well as related costs. Rent is a continuing payment without lasting benefits. Mortgage is a continuing payment with a great lasting benefit. The marginal benefits are also recurring and include not only the financial advantages of decreased travel expenses, but in addition to the value of life benefits for one’s self and their family. If one can decide that the marginal benefits overshadow the marginal costs, then their conclusion to buy a house would be well established.
If one worked as a car sales person and their spouse worked as a nail technician. One of these work environments would require space for their clients. A house would help to meet this requirement and let their spouse be close to home. The house is close to both schools and vital services. The house will be at least $400 per month in excess of what they presently pay for renting their duplex. Both parties work on a commission basis. With the state of the economy, they are not sure of their future earning power.
The total economic state does contribute to this decision. Right now, mortgage interest rates are low. International trade restraints presently gives advantages for domestic businesses that possibly or possibly not be present in the future. They also artificially raise consumer prices (Mankiw, 2007). The marginal benefits in this situation are going to stay the same no matter what occurs at the local or global economic levels. This would make one see that the marginal cost is worth the marginal benefits.
When the economy is in recession would be the best time to buy a house. Now, this may seem contradictive, but it’s because the interest rates are low and the housing need is low, so the housing supply is high. During a recession the marginal costs...