A new house - economy - Assignment Example

The decision to purchase a new house is a huge decision that many individuals make throughout their life. Many may become leery if the economy does not look promising. This is so since the home buyer typically purchases a house in hopes of being able to earn equity in the house. If the economy shows weakness it is likely that the home purchase may involve losing equity over time. This being the case the marginal benefits may not outweigh the marginal costs. A home can be purchased in a weak economy if the buyer is not concerned about equity.

The removal of the tax deduction has its affects on the housing market in a few different ways. Many do not purchase a home just for the tax breaks but to one day own a home and share in equity. A tax break is like a perk offered to home owners. Many will own a home just for the tax advantages. If the economy is poor and no tax breaks are offered, many will decide to not even purchase a home. This slows down the economy. Changes in government spending and taxes do affect how individuals make decisions.

If interest rates are to high many may decide not to purchase. When interest rates are low, many may decide that a purchase will be beneficial. The interest and taxes is also a large factor. If interest is not tax deductable then one may decide to just go ahead and rent rather than own. Why take on the responsibilities of owning a home if there are no benefits.