1

My Home Purchase and the Economy

John D. McKay
Econ/372
Sept. 18, 2015
Zack Zardo

2
My Home Purchase and the Economy
Americans are always on the pursuit of happiness. Part of the American dream is to be
able to raise a family in a decent home. When is the right time to buy a home? What factors can
influence the purchase of a home? My motivated has been determined by the unemployment rate
and interest rates.

Buying a home in Sacramento

Sacramento is a very desirable place to buy a home. The weather is conducive to being
outdoors. The population is very mixed, and the crime rate seems to be better than the national
average.

Sacramento has developed sports teams including the NBA team the Sacramento

Kings. Sacramento has a very attractive appeal to those who decide to purchase a property. Two
indicators that had convinced me to purchase a home in Sacramento are unemployment rate and
mortgage interest rates.
Identify and define two economic indicators that reflect the strength of the economy (e.g.
real GDP, unemployment rate, inflation rate, interest rate, housing starts, etc.).
First of all, Sacramentos unemployment rate has been improving. A lower unemployment
rate shows that people are working which stimulates the local economy. According to EDD,
Californias unemployment rate decreased to 6.2 percent in July, and nonfarm payroll jobs
increased by 80,600 during the month for a total gain of 2,027,700 jobs since the recovery
began in February 2010, according to data released today by the California Employment
Development

Department

(EDD)

from

two

separate

surveys.

(Californias

unemployment rate decreases to 6.2 percent Nonfarm payroll jobs increase by

80,600 2015, p. 1).

3
Another indicator that influenced my decision to buy property in Sacramento was
mortgage interest rates. Mortgage interest rates were at a historic low. Rates under 4% were
common. Because of the low-interest rates buyers had the option to get into a 15 year loan with a
reasonable payment instead of the typical 30 year loan. These reasons helped me decide that it
was the perfect time for me to buy a home in Sacramento.

(January2008toMarch2014MonthlyInterestRates,jpg)
With these economic indicators in mind, how has the economy affected the demand for and
supply of your selected product over the last 2 years?

4
The demand for homes has caused a sellers market. Home values have been on the rise
since 2010. Buyers that bought homes a few years ago have realized huge jumps in equity which
made the owning of property very lucrative. Since people are employed and interest rates were at
historic low home ownership was highly desired. With supply low and the demand high the cost
of homes skyrocketed.
What was the impact on the supply of the product and the impact on the demand for the
product?
Supply and demand are factors that influence home prices. Since the supply is low, and
the demand is high price should constantly increase. According to "Sacramento Home Prices and
Values" (2015), The median home value in Sacramento is $268,800. Sacramento home values
have gone up 7.6% over the past year and Zillow predicts they will rise 3.6% within the next
year (Market Temperature).
The building of new homes are in process around town but has not kept up with demand.
It is possible to buy a house today and turn around and make a nice profit in as little as a year.
High demand has made housing in short supply that drive up prices.
Explain the impact on the price of the product and your decision on whether or not to buy
the product.
House values have been consistently rising within the blast few years. High employment
and historically low mortgage rates have driven property values up. My incentive was not to buy
and sell but to live in a decent neighborhood where I could afford the monthly payment.
Presently, my payments are equivalent to renting a two bedroom house in the same area. Because
the time seemed right for me, I bought property in the Antelope area.

5
How might you apply what you learned about supply and demand to your work place or
your understanding of the product you are considering purchasing?
A few years ago there was a surplus of homes. Even though interest rates were low home
prices were also low. Problems with the economy and a lot of people looking for work kept
supply high. Since the economic rebound employment rates are high. People who are employed
and have the means to buy a home decided to buy. Slowly as homes were being purchased the
number of homes on the market started to decrease driving prices up. According toFreddie Mac
vice president and chief economist Nothaft, (2014),
The housing recovery is struggling to shift into a higher gear, and obviously there are
various imbalances holding this back from happening, but at the heart of the matter it
comes down to jobs. Housing needs stronger, and just as important, sustained levels of job
creation to get the housing engine firing on all cylinders. April's jobs numbers were
encouraging, and nothing will solve the supply and demand factors faster than keeping
employment growth going. Until we see this happening, we're revising our forecast lower
in several areas on an annualized basis. While we still see an improving trajectory for the
housing market, we're pushing it out a few months from our earlier forecast because we
expect GDP growth to pick up in the final three quarters of the year from what was clearly
a dismal first quarter reading" (para 3)
The Sacramento housing market shows a good example of what supply and demand will
do to prices. The more the demand then, the less supply that drive prices up. On the other hand,
when prices are high then supply grows which brings prices down. Although home buyers buy
property when they feel like it a more economic approach should be used. When buying correctly
a small profit could be made with every transaction.

6
How do the concepts of macroeconomics help you understand the factors that affect shifts
in supply and demand on the price of the product?
When supply exceeds demand then prices tend to do down and when demand exceed
supply then prices tend to go up. According to Economics, Whenever quantity supplied and
quantity demanded are unequal, price tends to change. If, however, quantity supplied and quantity
demanded are equal, price will stay the same because no one will have an incentive to
change (Colander, 2013, p. 90). Presently, I think that home prices in Sacramento have not
reached equilibrium. Buyers still have the opportunity to buy houses and have equity in the home
in about one year. Rising equity makes buying a home in Sacramento very desirable.

Conclusion
We all have the American dream of settling down and owning a home. Decisions are
required for down a down payment and location. But, what other factors influence our decisions
concerning home ownership? I used two indicators. These two indicators that had convinced me
to purchase a home in Sacramento are unemployment rate and mortgage interest rates.

References
Californiasunemploymentratedecreasesto6.2percentNonfarmpayrolljobsincreaseby
80,600.(2015,August).EDDNewsRelease,(1532),1.
Retrievedfromhttp://www.edd.ca.gov/About_EDD/pdf/urate201508.pdf

Colander,D.(2013).Economics(9thed.).RetrievedfromTheUniversityofPhoenix

7
eBookCollectiondatabase.

Lundquist,R.(2014,April10).FreddieMac30yearMortgageInterestRates[jpg].
RetrievedfromSacramentoAppraisalBlogwebsite:
http://sacramentoappraisalblog.com/tag/2014realestatemarket/

Nothaft,F.(2014).DemandandSupply.Retrievedfrom
http://freddiemac.mwnewsroom.com/pressreleases/demandandsupplyotcqbfmcc
1116779

SacramentoHomePricesandValues.(2015).Retrievedfrom
http://www.zillow.com/sacramentoca/homevalues/