The Incredible Growing Home

We talk a lot about home prices. We compare average prices today to a year ago, 10 years ago, or more.

But there's a flaw in doing this. To rationally compare the price of an average home today to an average home any number of years ago, you have to assume that the two homes are the same -- apples to apples. But they're not. The average American home has changed drastically over the last three decades.

The median new home built in 2012 was 2,309 square feet, according to the Census Bureau. That was a new record, up nearly 10% in the last decade. Plot the average since 1974, and our humble abodes have grown by more than half:

Source: Census Bureau.

There are two takeaways from this.

One, keep in mind that this is the median, not the mean average that would be skewed upward by a few Russian oligarch's palatial estates. The average new home is far larger today than it has ever been. Why is that? Is the average American richer? Compared with three decades ago, probably. Compared with a decade ago, probably not. What's changed is that we're spending more of our income on housing. In 1984, a typical household devoted 16% of their budget to shelter. By 2011 that figure was up to 19%, according to the Bureau of Labor Statistics. As I've shown before, the relative cost of things like food and apparel have dropped over the last few decades, and an average household now devotes about half as much of its budget to food today than it did in the 1970s. Part of that savings looks like it's made its way into housing. Even if total wealth hasn't increased much, the composition of what we're spending money on has.

Second, this should change the discussion about home prices. The average new home sold for $221,000 in 2010, which is virtually unchanged since 1987 when adjusted for overall inflation. But adjust for size, and the average new home today is 24% cheaper today than it was then, simply because a buyer today is getting more square footage per dollar. Thinking this way also changes how we talk about utility bills. Even if energy prices stayed flat, changes in average home sizes mean it should cost 50% more to heat or cool an average home today than it did in the 1970s.

And even though we're living in larger homes, the size of an average household is shrinking -- a function of a lower birthrate. In 1975 the average American household had 2.94 persons. By 2004 that was down to 2.57. Oddly, as recently as 1986, just 12% of new homes had three or more bathrooms. Last year, nearly a third did. Indeed, the average new home now has more bathrooms than occupants. Look how far we've come, grandma.


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  • Report this Comment On March 20, 2013, at 5:56 PM, FoolMeTw1ce wrote:

    Home builders love to advertise how "green" their houses are. Can you measure the change in new home heating/cooling costs over the same time period? In real dollars and carbon footprint? This, of course, would take into account the change in HVAC technology, housing insulation, and cost of electricity (again, in dollars and power plant fuel efficiency). Perhaps too many moving pieces for a useful comparison...

  • Report this Comment On March 21, 2013, at 1:15 AM, Milligram46 wrote:

    I can only answer the "green" home question with a big grain of salt.

    Old house - built 1958, 1450 square feet, two story, gas heat and hot water. Older electric appliances including stove, counter top microwave, washer, dryer, dishwasher and fridge.

    New house - built 2012, 2244 square feet, two story, gas heat, hot water and stove. All new appliances, gas stove, built in Advantium 120VAC oven, washer, dryer, dishwasher and fridge. Central AC (13 Seer) and gas fireplace.

    Same electric and gas companies. Same people and pet.

    Gas bill in new, almost half in the new home, and that is with thermostat at 70 degrees versus 64 and a gas fireplace.

    Electric bill is basically the same.

    The house is an order of magnitude more efficient resulting in real savings of $500 to $600 a month in much more square footage and a higher degree of comfort.

    This is a simple focus group of one - my "green" certification had to be approved by an outside party to get some local certification. It isn't all good - I LOATHE the craptastic GU-24 light bulbs.

  • Report this Comment On March 23, 2013, at 1:20 PM, shawnkalin wrote:

    Really. We have been 'sold' on too much house.

    Downsizers are the smart ones.

    Get the costs down as low as possible.

    You will survive.

  • Report this Comment On March 23, 2013, at 3:45 PM, 8Buckeye wrote:

    Houses have gotten much more energy efficient. The insulating value has gone from R-3 to R-7 in the walls to anywhere from an R-15 to R-22 and even higher. Ceilings have gone from R-8 to R-16 to R-28 to R -40 or higher. The newer heating units have gone from 65-70% efficiency to 85 to 95%. The microwave oven by itself was a major improvement that really only just burst on the scene in the 70's. This alone has happened since the beginning of the 70's.

    How far have we come in materials used and their efficiency? We now wrap our homes in teflon to block leaks and we use foam and spun fiberglass to insulate instead of shredded paper and horse hair.

  • Report this Comment On May 03, 2013, at 6:04 PM, oldcyclist wrote:

    Knowing that new homes are more efficient is a good thing.

    The question I would have is housing a bubble in select areas? If you look at the SF bay area where I live some zipcodes are selling above the bubble prices, others are close to bubble levels. About 2/3rds are below bubble with some still down 40% or more from bubble sales prices.

    One driver for this is lack of inventory on the market. Especially in areas that aren't the prime zipcodes. (Although it is hard to see when every zip codes average new sale for houses is above the national average.)

    So is there reaaly a bubble or a selective bubble?

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