Why New-Home Prices Are Surging
Why New-Home Prices Are Surging. Image courtesy of Sujin Jetkasettakorn / FreeDigitalPhotos.net
New-home prices have risen much higher than they should when comparing homes built in 1970 to those built today with similar characteristics, according to a new analysis by economist Tom Lawler. New homes last year sold for an average of $343,000 — more than double what they sold for in 1970, after adjusting for inflation, Lawler points out. He says new-home prices should be up only 23 percent from 1970, which would put the average sale price at $199,000 today.
The dramatic price increase over the past 45 years can mostly be attributed to the fact that homes are getting bigger and fancier, Lawler says. But ironically, the higher price tags have come over a period of time when the average American household has gotten smaller.
About half of all homes built in 2014 were more than 2,415 square feet, a 55 percent rise from the average 1,560 square feet in 1974.
Homes may be getting larger, but builders have been building fewer homes. Also, some builders may be focusing on larger homes since they offer better profit margins. But a reversal may be coming. New-home sizes have shown some signs in recent months of inching down. The median price of new homes in March dropped, too.
“That could be a sign more builders have decided to accept thinner margins to boost sales volumes of homes that are a bit smaller,” The Wall Street Journal reports.
Source: “Why New Homes Have Become More Expensive: They’re Much Bigger,” The Wall Street Journal (April 28, 2015)
