Saturday, June 27, 2015

Today’s new homes are 1,000 square feet larger than in 1973, and average living space per person has doubled

From Mark Perry.
"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.

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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.

houses3
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."

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