Our behaviors and decisions in our daily lives are affected by economics. When making decisions, we will use economic theories either consciously or subconscious to decide if we will make or reject that decision. The same can also be used to explain our actions and behaviors when making an economic decision to purchase a house. This paper will evaluate how economics affect one’s decision to purchase a new house. First, the decision to purchase a new house is considered a large and important decision by many.
This is because the prices of houses are usually very high, and thus purchasing a new house will greatly deplete the savings of an individual. The demand of houses is highly price elastic. Economic theories state that the larger the proportion of income a certain purchase requires, the more price elastic the demand will be. In the case of the purchase of a new house, it will require the spending of a large proportion of an average person’s income, hence this will greatly lower the purchasing power of the individual when the decision is made to purchase the house.
Furthermore, buying a new house will require people to shift from a familiar environment to a less familiar environment and this can be a life-changing experience which may be scary to some. Hence, these are all factors which make the purchase of a new house a very difficult decision to make. There are various principles of economics that can be applied to a decision to purchase a new house. First, one of the principles will be that of trade-offs which people have to face. Every decision comes at a cost.
In this case, the decision to purchase a new house will deplete people of a large proportion of their savings. The tradeoffs which they face will be alternatives which they get to enjoy with the same amount of money. For example, the same amount of money spent on a new house can be used on sending a child to university, going on a long holiday or purchasing a new vehicle. 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, and will my house be a smart investment in terms of efficiency and equity? 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. Tradeoffs 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.