Integrated Marketing

A New House – Risks and Benefits Belindrea Luckett XECO212 Instructor: SARA SHEIKH University Of Phoenix May 17, 2013

The Federal Reserve is the main Government body that influences national Fiscal Policies which, in turn, can affect the housing market in the USA. As this body is responsible for the setting the rise and fall of interest rates, it affects the amount of money people are able to borrow through mortgages. This will affect the price of houses. For instance, if less people are able to get mortgages to secure enough capital to buy a home, the prices of those houses already on the market may fall in an attempt to lure in more buyers. If the rate decreases, this means there will be more money introduced back into the economy, meaning more people will be able to get credit to buy homes, making the housing market become more stable again. In the same way, if the increase rate is increased, this may be good news for savers but bad news for house buyers as they will be less likely to secure credit to buy a home. This will send the demand for houses fall and this will affect their overall value. The Department of Treasury is another government body that affects the national fiscal policies. In 2009, for example, the department introduced a scheme called The Home Affordable Refinance Program which became available to those homeowners who already had a solid payment history on an existing mortgage plan.

In general terms, national fiscal policy refers to the way in which a government’s spending and taxation policies are able to influence the economy. Governments tend to use fiscal policy to control aggregate demand, price stability, economic growth and employment. Fiscal policy is a contrast to monetary policy, the alternative macroeconomic policy whereby attempts are made to stabilize the economy by controlling the money supply and interest rates.
In the USA, prominent economists such as Martin Feldstein have previously stated that there is no fiscal policy currently in place that is designed to help reverse or slow down the continuing slump in housing prices. However in 2008 a National Affordable Housing Trust Fund was approved by the federal government which aims to provide funding for housing for poorer families. However the Cato Institute argued that this move would make housing "slightly less affordable for most people so as to make housing more affordable for a few people.”
Providing tax concessions and incentives to builders is the most obvious way in which housing starts can be affected through national fiscal policy. A government could provide tax concessions to encourage builders to develop on green field sites rather than brown field sites, thus increasing the overall supply of housing. This in turn should theoretically have the result of driving housing prices down. From the perspective of homeowners, certain government taxation will have a direct impact on housing prices. Placing a tax on the sale of a home will obviously affect the price of the property. A change in the rate of Capital Gains Tax is a key example whereby fiscal policy can have an impact on property prices.

The biggest recommendation is for a potential home buyer to do a lot of research to find out where the interest rates are at the time of purchase. When the economy is in a recession it is best to buy a home during the recession. Due to the lack of money many sellers are taking what they can get which is usually a lot less than what the home may be worth. I feel that home owners need to think of the long term of buying a home. Some first time home owners jumped at the chance to purchase a home and were giving badly loans which cost them their home eventually.