One thing that is often overlooked when talking about the historical appreciation in housing prices is that homes have gotten progressively larger. (see below) Therefore, when using median or average price numbers, you need to adjust for the increase in house sizes. Otherwise you are comparing apples to oranges, or apples to bigger apples.
The other thing that is even harder to quantify is the quality factor. The quality of homes has increased in many areas. Even the Labor Dept. struggles with this concept when computing the CPI.
The important point to remember, when real-estate backers start spouting the investment bounties of residential real-estate, is that they are usually comparing two different housing stocks. If you adjust for home size and the updates necessary to stay current, the numbers would look much different.
The good news is that today's real estate bubble doesn't look as bad either, given the adjustments for size and quality.
In 1940 the median number of rooms per housing unit was
4.7. This figure gradually increased to 5.2 in 1990. Given the continued
removal of older housing stock and the higher number of rooms in newly
built homes (homes built in the 1990s had a median of 5.9 rooms), the
number of rooms per unit will continue to increase in the years ahead.
In addition to today's homes having more rooms, they are also larger than
homes in the past. Information of the size of new and existing homes was
not collected prior to the 1970s, but since then we do know that home size
has been increasing. The size of newly constructed single-family homes, for
instance, has risen from a median of 1,385 square feet in 1970 to 2,000
square feet in 1998, an increase of 44 percent. The median square footage
of all homes in the U.S. for 1997 is 1,702 square feet, up from 1,583 in 1985. |
