# Home Run!

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):

1981:

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

2005:

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 \$123.

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 sources:

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.