If you think home price increases have kept up with income growth, think again
We’re all painfully aware by now that home prices are at all-time highs. Now, a new report breaks the reality further down to square footage, and the squeamish may want to turn to avert their gaze.
Here’s the bottom line: The average price per square foot of a home hit a new record in July – rising by an eye-popping 310% since 1980. According to Home Bay, a California-based real estate brokerage, the increase in the price of a square foot of property has exceeded inflation by 139% since 2020, topping out at $169 per square foot.
As if this weren’t cringe-worthy enough, here’s another way of stating it: As a benchmark, a new single-family home currently has a median square footage of 2,356 with an average price of $397,100 per home averaging $169 per square foot. Comparing these numbers to 1980, the cost per square foot was $42, an astronomical rise of 310%.
“The overall price of goods in America has risen 224% since 1980,” the study’s authors wrote. “As a result, home buyers are looking to maximize their purchasing power by examining just how much house they’re actually getting at market price,” Home Bay wrote in the study. “Now, more than ever, buyers truly want to know what houses cost per square foot.”
You’d think that income has grown in a commensurate manner, but you would be mistaken: “We’ve already found that raises in annual income are barely keeping pace with inflation,” the study reads. “Since 2000, the overall price of goods in the US has risen by 67%. After adjusting for inflation, however, the median American household income has increased by just 7% in the same time period. That’s only 0.3% per year.”
Home Bay analyzed metropolitan areas at the top and bottom of price per square foot using data from the US Bureau of the Census, the US Bureau of Labor Statistics and Realtor.com. To that end, the study ranked the 50 most-populous US metros by price per square foot and found that the cities with the highest price per square foot were:
- San Jose, Calif. ($801)
- San Francisco. ($656)
- Los Angeles ($520)
- San Diego, California ($494)
- New York, New York ($458)
The cities with the lowest price per square foot were:
- Memphis, Tenn. ($92)
- Cleveland, Ohio ($103)
- Pittsburgh, Pa. ($134)
- Indianapolis, Ind. (134)
- Buffalo, NY ($139)
Home Bay additionally found that Memphis—while also recording the lowest price per square foot—had the biggest houses nationwide with a square footage of 2,630. The median square footage of a newly built single-family home has increased 50% since 1980 from 1,570 to 2,356 today while the occupancy rate decreased from 2.8 to 2.5 meaning people today have more space per person than previous generations.
In an interview with Mortgage Professional America, spokeswoman Danetha Doe (pictured) reiterated the reasons for the steady increases, but noted the role of institutional investors can’t be overlooked either. “There’s a lack of supply when it comes to homes, the cost of building a home has gotten more expensive, and I do believe there are issues in the way that on the one hand we say every American should have homeownership but it’s also turned into a cash grab for financial institutions,” she said.
In reciting more statistical data, Doe inadvertently pours more salt into the wound: “Income from 2000, when adjusted for inflation, has only increased 0.3% each year. Inflation prior to this year 2% to 4% a year, and I think last month was 9.1%. The price per square foot has increased more than income and inflation – not sustainable at all.”
The study also looked at median square footage, finding it’s increased by 50% even amid trends showing fewer people per household since 1980. According to the study, the median square footage of a new single-family home is 2,356 square feet — 886 square feet more than 1980’s 1,570 square feet. The average household size is down from 2.76 to 2.51 people. That means the square footage per person is 949 square feet in 2021, compared to 1980’s 569 square feet per person.