This fundamental problem with the housing market is stopping lots of people from buying a home
It's not just you - housing is getting more expensive for everyone.
And it's one of the reasons why we're seeing a generational shift away from home owners to home renters. In other words, that American dream of owning a house with white picket fence is dying.
However, the real story behind rising home prices is a bit more nuanced than you might know.
The real reason why houses are getting more expensive
Earlier this month, we list ways in which the average home has changed over the years. Among other things, the median square-footage of new, single-family housing has continuously crept up.
We went a bit further, looking at how much the value of each of those square feet have changed over the same time. Since 1992 (the earliest year for which we have data), the real average price per square foot paid for housing has been basically flat. It went up a lot during the housing boom in the early 2000s, crashed in the second half of the decade, and has now recovered back to about where it was back in 1992.
So, it seems much of the increase in home prices is coming from the fact that houses are just getting bigger. While the percentage of houses between 1,800 and 3,000 square feet has stayed roughly the same, the percentage of houses over 3,000 square feet has roughly doubled since 1999, and the percentage of new houses under 1,800 square feet has been cut in half.
If you are looking for a reason why young people aren't buying many homes, this might be a big one. There just isn't enough supply at a price point that young people can afford.
Look at this chart, from the economics data website FRED, of the number of new houses sold in the US for under $200,000 over time.
Even after the housing bubble burst, there's been no recovery in building cheap houses. As a category, they barely exist anymore.
What does this translate to? With some back-of-the-envelope math, it turns out that if you don't want to spend more than 25% or so of your income on housing, you're shut out of buying a (new) house if you make below about $40,000 a year - and that's with the current record-low interest rates. That's just a tad under 40% of the households in the US, according to this New York Times income percentage calculator, and more than half of people under 35.
Even knowing all of this, though, it's not immediately clear that this is a problem. Two things not addressed here are sales of existing homes and units in multi-family homes (that would be apartments and condos). Maybe all of the kids are going to buy the smaller houses that their Baby Boomer parents are trying to upgrade out of. Maybe developers are building cheap condos instead of cheap houses.
Maybe.
Are you a developer with any insight on this phenomenon? Get in touch! sferro@businessinsider.com or akiersz@businessinsider.com