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Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan's Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.
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The Census Bureau recently released its annual report on “Characteristics of New Housing” for 2014, which includes data on the average and median size of new homes and those data are displayed in the top chart above. Here are some details:
1. In 2014, the average size of new houses built increased to an all-time high of 2,690 square feet (see dark blue line in top chart), and the median size new home set a new record of 2,506 square feet (see light blue line in chart). Over the last 40 years, the average home has increased in size by more than 1,000 square feet, from an average size of 1,660 square feet in 1973 (earliest year available from Census) to 2,690 square feet last year. Likewise, the median-size home has increased in size by almost 1,000 square feet, from 1,525 square feet in 1973 to 2,506 last year. In percentage terms, the average home size has increased by 62% since 1973, while the median home size increased by 64%.
2. While the average size of a new US home has increased over the last 40 years, the average household size has been declining over that period, from 3.01 persons per household on average in 1973 to a new record low of 2.54 persons per household in the last two years (2013 and 2014), a reduction of almost one-half person per household over the last 40 years (see brown line in top chart).
With the average new house in the US getting larger in size at the same time that American households are getting smaller, the square footage of living space per person in a new home has increased from 507 to 987 square feet using the median size home, and from 551 to 1,059 square feet using the average size home. In percentage terms, that’s a 95% increase using the median home size and a 92% increase using the average home size. In either case, the average amount of living space per person in a new home has almost doubled in just the last 41 years – that’s pretty amazing.
3. What about the cost of new homes over the last 41 years? On a per square foot basis using median home prices and median square footage, the inflation-adjusted price of new homes (in 2014 dollars) has been relatively stable since 1973 in a range between about $104 and $130 per square foot (see bottom chart above). And the price of just under $113 per square foot for new homes sold in 2014 was almost 14% below the peak of $130.67 per square foot for a new home in 2005, and was also below the cost per square foot in most years during the 1970s and 1980s, and below the cost per square foot in every year from 2004 to 2008.
4. The National Association of Realtors’s monthly measure of housing affordability (based on the median price for existing-homes, median family income, and the current fixed rate for 30-year mortgages) displayed in the chart above also shows that purchasing a home today (new or existing) is more affordable today than the average affordability measure of 124 over the last 34 years. The current affordability index for April was 165, which means that a family earning the median annual income of $66,483 would have 165% of the qualifying income of $40,320 required to purchase the median-price home of $221,200 with a 20% down payment and a mortgage for the $176,960 balance, financed for 30-years at the 3.95% current mortgage rate. Housing affordability has averaged 124 over the last 41 years (median income was 124% of qualifying income), and was below 100 in the first part of the 1980s. Americans enjoy housing affordability today that is well above average for the post-1980 period, and twice as affordable as in the early 1980s.
Bottom Line: We hear all the time about stagnating household incomes, the decline of the middle class, rising income inequality, and lots of other narratives of gloom and doom for Americans. But when it comes to the new homes that Americans are buying and living in, we see a much brighter picture of life in the US. The new homes that today’s generation of homeowners are buying are larger by 1,000 square feet compared to the average new homes our parents or grandparents might have purchased in 1973, and have almost double the living space today adjusted for household size compared to 40 years ago.
And of course today’s new homes, compared to those built in the past, are much more energy-efficient; they come with better, bigger and more bathrooms, closets, and garages; they’re equipped with better and more home appliances; and they almost all include modern features like central air conditioning today that might have been expensive options in previous decades like the 1970s. Americans are paying about 62% more today for a median-priced new home on an inflation-adjusted basis compared to 1973, largely because the size of the median home has increased by more than 64%. So on an inflation-adjusted basis, we’re actually paying slightly less today for a new home on a per square-foot basis than in 1973. Overall, the increasing size, improving quality, and relative affordability of new (and existing) homes today means that living standards continue to gradually, but consistently, improve year after year for most Americans.
“We hear all the time about stagnating household incomes, the decline of the middle class, rising income inequality, and lots of other narratives of gloom and doom for Americans. But when it comes to the new homes that Americans are buying and living in, we see a much brighter picture of life in the US“…
So now the question is, will there be bursting housing bubble in the near future?
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The press (out of either laziness or willful ignorance) continues to mislead the public by focusing on cash wages as the singular measure of how well off workers are today versus previous years. They ignore all the non-cash wages and also the increasing value of what those wages can buy.
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The question is not whether we are in a real estate bubble, but whether we are leaving a reverse bubble.
If you can have bubbles then reverse bubbles are also possible.
The chicken inflation littles—where are you?
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There are several statistical fallacies in this article. Let’s start with a comparison of the current size of ALL families with the size if NEW, single-family houses. . . . . . . . . . . . .
Hint: many of those smaller houses built in the 70’s are still around and some of the average-sized families are currently living in them.
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What fallacies are those?
Is this not a comparison of current new home size and current household size?
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cb-
i believe what he is saying is that this looks only at NEW houses. new homes comprise a small part of the overall housing market. most people live in “preowned” homes.
further limiting the applicability of this methodology is that it looks only at “single family houses”.
if one adds in condos, apartments, and attached dwellings, i suspect the picture changes a great deal especially as the US has become more urban.
the big trend in major cities is toward micro apartments. (300 ft2 and down)
i think there is little question that the single family home has gotten much bigger in the US since 1970. i would bet the average in my neighborhood is 7000 ft2. this was unheard of 40 years ago.
but when you spend some time in cities, it’s quite different, especially among the “starter” apartment set. cities are so expensive that to have your own space starting out you need to have an apartment that is the size of a dorm room.
http://nextcity.org/daily/entry/tiny-apartments-seattle-micro-living-affordable
when i moved to SF in 1994, i had a 600 ft2 apartment that cost $600 a month. that exact same apartment today would easily cost $3000. it could well be $4k by now.
the problem with using “new single family homes” as a proxy is that it more or less completely ignores the part of the country where inflation in home prices is highest.
how many new single family homes have been built in nyc, sf, boston, etc this year relative to condos and apartments?
not many.
this metric seem like is is missing the place where most of the inflation is going on.
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OK, valid points, but no fallacy has been stated. The topic is strictly about single-family houses.
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Much of the increase in size may be due to increased borrowing and higher leverage enabled by the federal implied guarantee. In the first chart, house size growth takes off in the 1980s, as Fannie and Freddie begin their big expansion.
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@Jay Weiser
There’s also the recent criminalization of small houses and small apartments.
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@Jay Weiser
There’s also the trend of increasing criminalization of small houses and small apartments.
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Globalism the stage of historical development when the elites no longer feel restrained by national identity and are free to enrich themselves at their host society’s expense, –
mainly by outsourcing jobs to low-wage countries and by insourcing low-wage labor for jobs that cannot be relocated, such as those in construction and services.
This two-way movement redistributes wealth from owners of labor to owners of capital. Businesses get not only a cheaper workforce but also weaker labor and environmental standards. To stay competitive, workers in high-wage countries have to accept lower pay and a return to working conditions of another age.
The top 10% are thus pulling farther and farther ahead of everyone else throughout the developed world. They’re getting richer … not by making a better product but by making the same product with cheaper and less troublesome inputs of labor. This is not a win-win situation, and the potential for revolutionary unrest is high.
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Too many unsupported assumptions.
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