In Wednesday’s entry about the shortcomings of the median price I discussed the idea of “bang for the buck:”
It may simply be the case that a given amount of money will buy a larger or nicer house this year than it would have last year. If buyers are spending the same amount of money but getting nicer houses, this represents a real-world price decline that is not reflected in the median price.
One can attempt to measure this effect by observing changes not in the overall price, but in the price per square foot. It’s a somewhat rough method as it still doesn’t account for a home’s location, view, workmanship, or any number of other difficult-to-quantify characteristics. But if bigger is indeed generally better then we are at least given an idea of what buyers are getting for their money
The first graph displays changes in the median price per square foot for resale homes since May. (May is nothing special; it is simply the first month in which I started collecting this type of data). During this time, as the graph makes clear, buyers have steadily gotten more for less.
Just for kicks I have included a second graph that shows the overall median sale price for the same set of home sale data. Although a slight downward bias is detectable, the median price is, relatively speaking, all over the map. The two trendlines in the first graph are comparatively quite striking in their smoothness.
While it’s not perfect, measuring the median price per square foot seems like a step in the right direction when it comes to determining what’s really going on with home prices. Let’s check back in on this particular statistic in the months ahead.
– RICH TOSCANO