Supersized homes (and the impact on price)
Here's the changing size of the typical new home between 1978 and 2008, according to the Census Bureau:
That's a 41 percent increase. Significant change in 30 years.
But it can't explain away even most of the increase in price, because the average new U.S. home cost 368 percent more last year than it did in '78. Home size grew 7 percent during the speedy run-up in prices of 2000 to '05.
But wait, size isn't everything. Wonk reader jake recently asked for a more complex chart showing the change in home prices adjusted not only for square feet but also inflation and interest rates.
I number-crunched for a while, but I'm deeply conflicted about adjusting housing to account for the rising cost of living. That's because the Consumer Price Index, generally used as a stand-in for inflation, includes housing costs. (There's also debate about whether the CPI is an accurate measurement of living costs, but that's another story.)
I ended up setting aside inflation. Instead I produced a chart that shows the financing cost, per square foot, of an average new home in each of those years. In other words: What's the monthly tab for an average-priced, average-sized new home with a 30-year fixed mortgage at the going rate?
That's a 140 percent increase since 1978, from 30 cents a month per square foot to 72 cents. So, account for the growing size of homes and the falling cost of financing -- mortgage rates were 6 percent last year compared with 9.6 percent in '78 -- and the jump in price does look somewhat less dramatic.
If rates take an upward turn, though, that can change the story. What I found really interesting on this second chart was the steep increase in monthly cost from 1978 to 1981. The primary reason wasn't rising home prices. It was mortgage rates shooting up from 9.6 percent to 16.6 percent.
The increase earlier this decade is often blamed on mortgage rates, too -- but for the opposite reason. Rates, 8 percent in 2000, dropped below 6 percent on average in 2003, 2004 and 2005. That touched off the "our loan terms are INNNNNSANE" craze that got us where we are today, economically speaking.What do you think of adjusting historical home prices to account for various economic factors? Are there other ways you like to look at the change over time?