New House Decision

Final Project: A New House Decision Page 1

Running Head: Final Project: A New House Decision

Final Project: A New House Decision

XECO 212

Donald Jensen

Axia College

University of Phoenix

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When it comes to making a decision as important as buying a new home one of the biggest factors that will play a major role in this decision will be economics. Since economic indicators play such an important role in our decision, whether it is consciously or subconsciously understanding economic conditions will help in making the right decision.

The reason that the economy plays such an important role is due to the fact that home prices are usually very high and will require a substantial down payment,( most lenders require around 3.5% of the value of the home), which can deplete the savings that the individual may have. The demand for houses is considered 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. Lenders also explain that your house payment should not exceed more than one third of your monthly income. This should be something that the buyer should have an understanding of, as it will require the spending of a large proportion of an average person’s income, so this will considerably lower the purchasing power of the individual when they decide to make the purchase of the house. Another factor in buying a new house will require the individual or individuals to shift from a familiar environment to one that is less familiar and can become a little scary. All these factors which make the purchase of a new house a very difficult decision to make.

There are many principles of economics that can be applied to the decision in purchasing a new house. The first principle would be that of trade-offs which every perspective individual that is interested in buying a new home has to weigh. Every decision we make comes at a cost. In this

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situation the decision to purchase a new house means that it will cause the person to give up a large proportion of their savings. The tradeoff in which they will face will be possibly taking that nice vacation, saving for their child’s education, purchasing a new vehicle, or just eating out as often. This should cause the individual to weigh the pros and cons of these tradeoffs against the decision to purchase a new home. It is also critical that an individual should consider is the benefits of being a home buyer. One example would