Home Run!

by Don Boudreaux on November 28, 2006

in Standard of Living

Loyal Cafe patron
Chris Demetra points out in an e-mail the following interesting facts about
housing in the USA.  (I’ve modified his data somewhat, using
new homes rather than existing homes; the data are more consistent that way):


Median New Home Price
– $100,688

Median Square Footage – 1,550

Price / SqFt = $65

Mortgage Rate = 16.6%

Monthly Mortgage
Payment on 1 SqFt = 57 cents


Median New Home Price
– $240,900

Median Square Footage – 2,245

Price / SqFt = $107

Mortgage Rate = 5.9%

Monthly Mortgage
Payment on 1 SqFt = 64 cents

Note that these are
nominal dollar amounts, and when I calculated the monthly mortgage payments I
assumed a 30-year fixed-rate mortgage.  (The 1981 median home price,
expressed in the data-source below in 2005 dollars, is above deflated, using
the CPI, back to the 1981 price.)

If we express in 2005
prices the price per square foot of a median American home back in 1981, we get

That is, even
disregarding all the improvements that houses today have over houses in 1981,
the reduction in mortgage interest rates combines with the substantial increase
in the size of the typical home to permit Americans today to pay just barely
more than half of what they were paying a mere quarter-century ago for their
household living space.

Here are the data

footage and home prices
Monthly mortgage
Mortgage calculator

UPDATE: I agree with the commentors who point out that 1981 is too-unusual a year to choose for such calculations as above; it was indeed a year with unusually high nominal rates of mortgage interest.  So the monthly-mortgage-payment/square-foot figure in 1981 compared to 2005 is not a good comparison.  I should not have offered this comparison.

Nevertheless, commentor Joe Blalock is mistaken when he writes:

Your result is entirely mortgage rate driven.

Other than the rate effect, the notion that the cost of the home per square foot is lower now is laughable.  Sorry

Forget about mortgage-interest rates.  Look only at the price of homes and the square footage of these homes: $65 per square foot in 1981 (in 1981 dollars) and $107 per square foot in 2005 (in 2005 dollars).  So if we convert the 1981 price into 2005 dollars, we find that the price per square foot of the newly built median-priced American house in 1981 was $140.

That is, on a square-footage basis, the real price of the newly built median-priced home today is about 25 percent lower than in 1981.


48 comments    Share Share    Print    Email

Previous post:

Next post: