Your Name Here XECO/212 June 23, 2013

New House Decision

I have decided that in this economy it is a good time to purchase a new house. This was a very big decision to make and a lot of thought went into to the decision that my husband and I have made. The housing market is down so the prices are low and so aren’t the interest rates. I have decided to purchase a home that is not that expensive and that needs work. I am looking into different types of mortgages that have a wide range of interest rates. I want to be able to pay my mortgage and pay for the work that needs to be done. When it is all fixed up, I want to get it appraised and hopefully sell it for a big profit or maybe rent it out depending on the market and the economy then. If for any reason I will not be able to sell or rent it out I can live in it for a while and save some money for my dream home. I have done the entire math and figured out how much my bills will be and what I can afford on my own, just in case my husband’s business gets slow again. I want to be able to pay for everything on my income only. With my husband being self-employed times can get tough and I never want to lose another house again. We lost a house a couple years back due to the economy and it was one of the hardest things we had to go through. We bought at the peak of the market back in 2004 and paid a lot for a home. My husband was making really good money at the time and we never thought that business would get slow. One day the phone stopped ringing and my husband was scrambling for work. Our mortgage was $2400 and we were living on my $150 week pay check for a while. It was hard at times; my husband would take a kind of job out there if it was available even if he really didn’t know what he was doing. I am really cautious about our purchases that we make now. I have learned that when things are perfect they do not always stay that way. I have prepared for a recession again so we won’t get in trouble.
I have asked myself if buying a home is cheaper than renting and according to (business.time.com) it is cheaper to buy a house than rent. Prices of homes are cheaper and interest rates are low so in the long run it is cheaper to own a home. There are tax benefits for people who own homes and with the interest rates so low it happens to cost less to borrow the money than it has in past years. The mortgage interest deduction is unlikely to be eliminated, which is a good thing.
I have gone over some of the principles of economics and the first one I have given a lot of thought to is people face trade-offs( Mankiw, 2007). Right now I rent an apartment and I do not have to worry about paying for the things that can go wrong when owning a home such as if the boiler goes, I do not have to replace it. Also I do not have to pay taxes on the home. I do not have to worry about maintenance or up-keep. These are the good things about a trade-off but there are some bad things such as you have to live with other people in the building. You have no idea what other people are doing; they could start a fire or blow up the house. When you have children you worry about that stuff. Sharing parking spaces and paid laundry gets old quick. Another principle that I have given thought to be the cost of something is what you give up to get it. I know that owning a home I will have to give up some things that I do now but I think that it is well worth the giving up because I am getting a big prize in return. Another principle is a rational buyer will always think at the margin (Mankiw, 2007). This means that if the house can benefit me and I can get the home at a good price than I should act on it. People respond to incentives (Mankiw, 2007) is another principle I have thought about. There are a lot of good homes that are cheap out there right now. I want to be able to get a big home that has a lot of potential for cheap money. They are out there I just have to be careful and choose the right one.
Right now, according to fox business interest rates rose to the highest they have been in over a year, sapping demand from potential homeowners. Rates climbed 2 basis points to an average of 4.17. This brings up worry that the Federal Reserve could slow its stimulus program sooner than had been expected. (June 14, 2013 foxbusiness.com) I have taken a lot of thought over this and I think that right now is a good time to buy a home. I want to be able to get a home with a low interest rate. If the interest rates keep climbing then people won’t want to buy homes. Because interest rates are low and your monthly payment will be lower does not mean that I can spend more for a home that will get me in trouble. Having a husband that is self-employed can be a stressful thing. The economy can drop down again and there could be no work again. We have to be able to afford our living expenses. The international trade and domestic economy have a big role that affects the strength of the economy. Our domestic economy is made up of fundamentals such as government spending, trade, level of consumption, and level of investments. Changes to these things can affect the economy. When there is a global recession and the US is in a recession then people do not have the money to purchase homes. In this time right now things are getting better and the world is repairing the economy. There are jobs back in the US now and people have the money now to spend. Businesses that have taken their jobs overseas are now bringing them back here to help us out. With jobs coming back to the US this strengthens our economy so people can have the money to live and play. When balance of trade falls the economy falls and people lose their jobs or get a pay cut and have less money to spend on things such as houses or cars.
Marginal cost and benefits for buying a home, for me was a little complicated to figure out. I know that there is a lot of houses out there at can benefit me while looking into getting what I want in a home. One benefit is that I can buy a home in a desirable area for less now. This is great considering I need a family friendly neighborhood and a safe neighborhood. The cost is low for these houses so that benefits me greatly. I can get an updated kitchen or a 4th bedroom within a larger home for the price of a smaller home. 10 years ago, purchasing a home was a lot different than it is now. Prices were more and there was not a lot out there for homes. People were spending a lot of money on homes that they like and they still had to do work in them to make it theirs.
One important thing that I have been thinking about is the price of oil. I need to be able to afford to heat my home. Also we need to be able to buy the gas in our cars so we can get to work every day. Expenses like this change throughout the year so I need to make sure that I can put money away in the summer months for the winter months and make up for the rising oil prices. I may look to see if I can get a home with natural gas which may be cheaper than oil. I have to way out my options and research what is best for me.
The situations that would make me chose a different decision would be if the prices of houses were really expensive and the interest rates are high. I know when the economy is good my husband has a lot of work and the money is always coming in but I cannot take a big risk in purchasing a home that is too expensive for my budget. I need to be able to live when times do get bad. I have already been in a situation that was bad as I stated in the first paragraph and I do not want to do it again. Another situation would be if my husband was not working a lot and we did not have the money to pay our mortgage every month. If I did not have a job to cover the other expenses, it would be hard living on one unsecure income. Also a big deal breaker for anyone is if the credit is bad and I can’t get a loan. If you can’t get a loan you cannot do anything. Some loan companies want you to put a hefty down payment on the loan to see if you can handle a big loan. If you can’t come up with the down payment you may not be able to get a loan or the interest rate you want. This would make me say no way to purchasing a home.
In conclusion there are all these factors to think about when wanting to purchase something so big. It is a life changing decision that you need to take the time and go through all the pros and cons of the economy and your own personal situations. The economy has a big role in your decision and we have to do our homework to see if purchasing a home is the right thing to do. I had to make sure that “my ducks were in a row” before I made my decision. I went over my finances and talked to my husband about his work and if he will be working for a while without a break in the action as I say and he said he has a bunch of worked lined up so we can put money away for the future, whatever that may hold.