Checkpoint: New House - Readiness
Of the 10 Principles of Economics that would play a major role in a house buying decision, the most outstanding is The Cost of Something Is What You Give Up to Get It. Setting aside the obvious financial sacrifices that are made to buy a home, people also give up the inanimate that is not always easily identified such as the worry about the decision itself, the worry of making the monthly mortgage payment, the worry of upkeep and maintenance, and the worry of resale of the home should it ever be needed. Making sacrifices and foregoing luxuries such as vacations are the animate part of giving up something to get a home. It accompanies the inanimate of stress and worry.
An example of decision making is People Respond to Incentives. Today’s housing market favors the buyer as there are many homes in foreclosure or homes are being sold to avoid foreclosure. This provides an incentive for those who can afford it to buy a home to live in and for those who can afford a second home to rent the home. The rental market is at a premium in many areas as homeowners who are being forced out of the home they tried to own now need to rent.
Trade Can Make Everyone Better Off as an example of interaction is easily explained by expounding on the homeowner’s loss of a home and the subsequent need to rent. By having rental properties available by people who are able to own more than one home creates the scenario where people are better off by trading with others. While it may be viewed by some as taking advantage of someone who has lost their home, it should be viewed that renter has the advantage of renting from another member of the community versus a large corporation that owns blocks of homes or apartments.
Taking the example of the homeowner turned renter to the example of the workings of the economy, consider that A Country’s Standard of Living Depends on its Ability to Produce Goods and Services. Currently, productivity is down in the United States as factories have closed and unemployment is higher than it has ever been in many areas. Goods are not being produced and services are at a premium. Without a steady productivity rate, the standard of living is changed and the workings of the economy are affected as income is down with less money being spent.
Marginal cost and marginal benefits are part of the decision making process when buying a home. The buyer should consider the marginal benefit of owning a home such as the tax benefits with mortgage interest and the security of homeownership for example. The marginal cost to be considered is the difference between paying rent for a home and taking the same amount and applying it toward a monthly mortgage payment instead.