Life-cycle cost analysis of home-ownership

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dc.contributor.advisorSingh, Amarjit
dc.coverage.spatialUSA
dc.creatorGautam, Kamal
dc.date.accessioned2024-05-30T02:16:02Z
dc.date.available2024-05-30T02:16:02Z
dc.date.issued2009
dc.description.abstractThis research analyzes various economic and cost parameters to comprehend life-cycle cost of home buying and home ownership. The framework of this study lies in the fundamental concepts of life-cycle cost analysis, time-value of money, opportunity costs, cost forecasting, and inclusion of cradle-to grave expenses and revenues. This work was aimed for the benefit of first-time homebuyers as well as owner-occupied homeowners. A life-cycle cost analysis methodology has been developed, which can be used as a tool for informed decision making. The bottom line of this methodology is to alter various parameters in order to find the lowest possible equal uniform net final monthly expense (EUNFME). This methodology does not consider any elements that cannot be converted into monetary value such as psychological and social values. An Excel spreadsheet program was developed to organize the calculations and analysis according to the developed methodology. Then, program codes were written in Matlab, which was used in analyzing a typical purchase scenario, using relevant data for a median priced single-family house located in O'ahu, Hawai'i. Relevant economic time series data were collected and used for cost forecasting, price escalation, and to calculate real rate of return. The analysis of the typical example varied multiple purchasing conditions such as mortgage interest rate, discount points, size of down payment, and alternative investment opportunities to arrive at a rational buying decision. Buying versus renting analysis was also included in the purchase evaluation. Buying a house is a complex process, a marriage between comforts of a facility and financing in a property. Analysis of the example indicated that in order to minimize the equal uniform net final monthly expenses, buyer should explore conditions that reduce opportunity losses and maximizes the economic returns. Some of these conditions are: (i) paying least amount of down payment when CD rates are higher than mortgage rates, (ii) exploring a suitable combination of mortgage rate and discount points that optimizes the economic benefits. The trends of the results are independent of the purchase price of the house, but are dependent on all the other purchase parameters. Purchasing an owner-occupied house may bring some tax return, but benefits are often overemphasized. Similarly, buying a house as an investment alternative was not found to be attractive under many conditions. The housing affordability index (HAI) put out by the realtors is found to be more liberal in the absence of comprehensive life-cycle cost consideration of home-ownership. In many occasions renting a house could serve the needed functional purpose and may prove to be economically more attractive than an owner-occupied house.
dc.formatThesis
dc.identifier.urihttps://hdl.handle.net/10125/108162
dc.languageeng
dc.rightshttp://rightsstatements.org/vocab/InC/1.0/
dc.subjectHousing Crisis
dc.subjectLife-Cycle Cost Models
dc.subjectHome Ownership Life Cycle Costs
dc.subjectHome Affordability
dc.subjectBuying versus Renting
dc.subjectMortgage Severity Index (MSI)
dc.subjectTime Value of Money
dc.subjectOpportunity Cost
dc.subjectCost Forecasting
dc.titleLife-cycle cost analysis of home-ownership
dcterms.typeText

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