Home Purchase

The purchase of a home is one of the largest and most important investments one can make and requires substantial financial commitment. Moreover, making the wrong decision will have lingering financial consequences. It is important to determine principles of economics that affect the purchasing decisions, evaluate the strength of the economy, and compare marginal benefits and marginal costs to make a sagacious and prudent decision.

"Economics is the study of how society manages its scarce resources (Axia, 2010)." Economics are not exclusive to the economists; instead, principles of economics are instrumental in the everyday decisions of society whether large or small. When purchasing a home, many principles of economics come into the equation. Most important people must consider tradeoffs to determine what their family needs and wants. Needs would come first before wants, and the resources remaining after needs are met can be used for the family's wants. Buying a home would bring one to the crossroads of apartment life and the low maintenance involved. However, the tradeoff must factor in the benefits of owning a home. Benefits include tax credits each year to either cushion the blow of taxes owed, or increase the homeowners tax refund. Additionally, the money being spent each month on the mortgage can be applied to an asset that will be owned versus paying rent that does not benefit anyone but the landlord. Increased utility bills, upkeep, property taxes, and homeowners insurance are expenses that are factored into the tradeoff also. These expenses help a person ascertain the next principle, that states the cost of something is what you give up to get it. As commonly stated, very few things are free. Owning a home requires more money in maintenance and time for the upkeep. The free avenue to resolve broken appliances or other maintenance issues through a request in the leasing office will cease. The cost of owning that home will now include these costs or monthly home warranty premiums. Money will also have to be spent on yard work and any other upkeep associated with the purchase. One must determine if the future acquired costs merit the purchase.

The principle that rational people think at the margin shows that the costs seem to be higher at first consideration of buying a home. This principle exist because "limited income enforces choice(Investopedia, n.d)." Consumers of all goods have to determine what will be purchased and will not be purchased according to their resources(Investopedia, n.d.). Many people cringe at the higher payments, insurance premiums, property taxes, yard work, and maintenance. In contrast, the long term calculations reveal that owning a home can add more wealth over time than an apartment. Paying more upfront for a home, and reaping the benefits later is a more rational choice.

The current economic downturn showcases the principle that people respond to incentives. The housing market showed some promise when the government implemented the tax rebates for home buying. Providing an additional $7,500 for a home purchase when interest rates are low is the ideal combination to invoke responsive action from perspective homebuyers. According to an article in the New York Times , the builder Hovnanian Enterprise posted its first quarterly profit since 2006 due to the tax rebate. " Like other builders, Hovnanian's orders improved last year as low interest rates and a housing tax credit coaxed reluctant buyers into the market" (The associated Press, 2010). The success of the tax rebate initiative is proof that an incentive or discount will grab people's attention, and stimulate the economy.

Beyond the principles of economics that apply to the home buying process the marginal cost and marginal benefits require evaluation. Owning a home includes expenses that renters neglect to consider. For example, rentals include maintenance and appliances, so when the air conditioner fails or the refrigerator stops cooling renters can call the office for repair at no charge. The low maintenance costs and saved time on repairs are appealing to many, but do the marginal benefits exceed the marginal costs? During tax time homeowners can reap the benefits of claiming property