Buying a New House in Today's Economy
A New House-Economy Checkpoint
XECO/212
A New House-Economy Checkpoint
The health of the economy plays a large role when trying to purchase a new home. It is important to keep track of the GDP growth rate to decide if it is the best time to buy a new home or not. The GDP is an indicator that shows if the economy is stable or not. Ideally, a new home buyer would want to purchase a home when the economy is stable. If the economy is spiking or growing too rapidly, the cost of a home may be overpriced due to inflation. On the other hand, if the economy is sluggish or in a recession, home values are under market value. This affects the marginal costs associated with purchasing a home. Does a person want to spend over market value for a home and risk not having any equity? Or does a person want to buy a home with very little equity because it is so under value? If the economy is stable, the price of the home would be around the value of the property.
The government offers a tax break on mortgage interest paid every year. This entices people to purchase a home because of the write-off they could claim at tax time every year. This is a marginal benefit of purchasing a home, in addition to other marginal benefits such as an investment and opportunity to make a profit in the future. If the tax deduction was removed, the housing market could face a downturn. People may stop purchasing homes and opt to rent instead because they can’t claim the home on their taxes every year. This would affect the economy and GDP; the growth would fall due to lack of large purchases such as homes.
Changes in tax rates and government spending could affect the decision to buy a home. If taxes are increased, there would be a decrease in disposable income. This could result in less money to make a house payment or less money towards upkeep of the home. In addition, if the government increases spending it can either boost economic growth or create a larger deficit. A large deficit
XECO/212
A New House-Economy Checkpoint
The health of the economy plays a large role when trying to purchase a new home. It is important to keep track of the GDP growth rate to decide if it is the best time to buy a new home or not. The GDP is an indicator that shows if the economy is stable or not. Ideally, a new home buyer would want to purchase a home when the economy is stable. If the economy is spiking or growing too rapidly, the cost of a home may be overpriced due to inflation. On the other hand, if the economy is sluggish or in a recession, home values are under market value. This affects the marginal costs associated with purchasing a home. Does a person want to spend over market value for a home and risk not having any equity? Or does a person want to buy a home with very little equity because it is so under value? If the economy is stable, the price of the home would be around the value of the property.
The government offers a tax break on mortgage interest paid every year. This entices people to purchase a home because of the write-off they could claim at tax time every year. This is a marginal benefit of purchasing a home, in addition to other marginal benefits such as an investment and opportunity to make a profit in the future. If the tax deduction was removed, the housing market could face a downturn. People may stop purchasing homes and opt to rent instead because they can’t claim the home on their taxes every year. This would affect the economy and GDP; the growth would fall due to lack of large purchases such as homes.
Changes in tax rates and government spending could affect the decision to buy a home. If taxes are increased, there would be a decrease in disposable income. This could result in less money to make a house payment or less money towards upkeep of the home. In addition, if the government increases spending it can either boost economic growth or create a larger deficit. A large deficit
References: Mankiw, N.G. (2007). Principles of economics (4th ed.). Mason, OH: South-Western Cengage Learning. Retrieved from:University of Phoenix eBook Collection.