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Housing

How has the amount Americans spend on housing changed in the last thirty years? As you can see from the graph, the housing market has been consistently volatile since the 1970’s due to seasonal changes and times of economic hardship and recession. There was a huge drop beginning in 2007 and lasting through 2009 from the devastating recession of that time. The housing market has been trending upwards since then, but still is recovering and is at one of the lowest points in history still. This graph takes into account the increasing prices of houses and increasing average income per person over the years. It normalizes the values by dividing the total value of all houses by the nominal GDP.

Just in the last five years, the average square footage of a house has increased by 300 square feet. The size of houses and median price of new houses have both trended upwards over the years, which accounts for the hesitancy of buyers to spend their disposable income on houses. Because of the price increases, it’s harder for young people to enter the housing market and the average age of buyers is increasing as well.

What other factors could affect the dwindling sales of new houses in the market today?

http://fortune.com/2016/07/14/real-estate-charts/

https://www.cnbc.com/2017/06/23/how-much-housing-prices-have-risen-since-1940.html

https://fred.stlouisfed.org/series/MSPNHSUS

How much do we spend on new houses?

16 thoughts on “Housing

  1. richardsonw20

    People are hesitant to enter the housing market in general. They do not want to get burned like so many did during the crash of 2008. In the time preceding the market crash, we saw interest rates falling. Lower interest rates lead to loans becoming much easier to acquire. This is why the number of younger families buying houses was much higher in '07-'09. Now that interest rates have gone back up, loans are not as easy to get and young families might not have the cash to buy a house the size that they could have in say, 2006. I would say that the reason for the increase in square footage of houses sold today can be attributed to the fact that the type of person buying a home is much different now than it was previously. Before the crash, young families were able to easily buy a house. It is much harder for this to happen now which means that the families we see buying houses now are most likely financially stable and have the means to afford a larger house than the families buying in the mid 2000's.

  2. Kaitlyn Fitzsimmons

    In the wake of the recession banks and Americans became hesitant to give or receive subprime loans. Before 2008, purchasing a house was remarkable easy. The strategy of buying two or three homes, hoping to flip them and turn them over in a couple months with a big margin was popular. People began to realize that when they couldn’t sell immediately they would have to account for three mortgages. And Americans who owned just one home fell into the trap of indulging in a home above their means. With just one missed paycheck could mean not being able to pay their mortgage. Even in 2017, the memory of these tough times haven’t faded. Images of newspaper covers with entirely empty suburbans haunt Americans. Millennials grew up during this crisis and have uneasy sentiments towards homeownership and also have less need for family homes. Lifestyle changes account for less demand for homes since millennials are waiting longer to get married and start families. They are also paying more attention to their credit by taking on smaller homes with modest mortgages.

  3. mcconnellm20

    Entering the housing market can be scary especially for first time buyers. There are a lot of risks they have to make. During the recession around 2008, it makes sense why there was such a huge drop in the amount of money people were spending on housing. During periods of recession, people are less likely to spend their disposable income on a house. Even though people are having increasing incomes, the price of housing is rising which makes it hard for younger people to purchase a home.

  4. mizeo20

    One could make the argument that many buyers are waiting until they are completely financially stable and later into their careers to purchase a new home. Millennials and other younger people are waiting longer to get married, to have children, and therefore, are waiting longer to buy a home. These individuals tend to stay in an apartment that is cheaper until it is financially responsible to purchase a new home. Along the same lines, these individuals are also very fearful of credit. Younger individuals were taught that having large amounts of debt is a bad financial decision; thus, these people are now deterred from taking out large mortgages and loans they cannot afford and will wait until they can make larger down payments.

  5. murrayc20

    New houses getting built larger probably has to do with the change in modern lifestyle and those being able to afford a house. With new technology, goods are able to be produced at a more massive scale, quicker and cheaper. This means that the average family can buy more things; more things means more storage. More storage means the demand for a bigger house. Also, younger families that are confident and economically stable enough to buy a new home are usually those who are better off; they could afford a larger house compared to those who do not feel comfortable entering the market because of thier, lets say, economic instability. Therefore construction must cater to the damand.

    Also, making the big leap into the housing market is a big step, especially for young families who just stepped into the real world. Uncertainly about future inflation and future economic occurrences in general can cause an understandable hesitancy. If inflation rates are high in the future, taking out a loan with interest would benefit the borrower. But lets say there is unexpected deflation; those families could potentially not pay back their loans with interest because their purchasing power is less than when they look out the loan. Thus, because a house for middle class families affects them for years to come and is a huge investment, uncertainty about the future of the economy discourages many young families from entering the housing market.

  6. laniere20

    It is no shock that the square footage of houses has increased. In modern society, people want bigger and better and that includes real estate. I understand why the housing market goes through up and downs, but it surprises me that this market isn't a little more constant that it is. People are constantly moving and looking for new jobs, and that makes me think that the housing market should always be alive. However, it is more expensive to move and find a new job than it is to stay in your current house, and this is one reason that could cause the hosing market to trend downwards.

  7. litvaka20

    As shown in the graph, the housing market is continuously experiencing highs and lows, which makes entering the market a risky endeavor for any first-time buyer. In some cases, the dwindling sale of houses could be because there are some areas in the United States that have yet to fully recover from the Great Recession. Therefore, it is difficult for people in that area to sell houses and many of them remain on the market for years. Another factor could be that first-time buyers are not interested in purchasing new houses that have a large square footage. Typically, first-time buyers will want to invest in a smaller house and then eventually move to a larger house as their careers continue. However, if most new houses on the market have a lot of square footage, it might be a disincentive to purchase the house. It could also be risker because a house with a greater amount of square footage would cost more, which may become an issue when trying to sell the house in a struggling housing market.

  8. smithg20

    There is definitely a strong fear among consumers in the house market, specifically first-time buyers. The 2008 crisis demonstrated how delicate and volatile the housing and loan industry is. After the crisis, people are more weary to take greater risks. The increase in average house square footage is not surprising with modern technology and amenities but it does also contribute to the nation’s fear of home ownership.

  9. Ruofan Shen

    I think there are some other important factors which affect the decrease in housing sales. For example, the young generation are more likely to rent a house rather than buy one. So checking the rental rate might be able to explain this phenomenon. In addition, Chinese buying power should be taken in to account. A lot of Chinese flew into the housing market in the US these years. Also, the discrepancy between the rich and poor may be considered as another factor. In general, the rich would consider house as a necessity while others don't.

  10. denatalec20

    It does not surprise me that young people are so hesitant to enter the housing market right now. Buying a home, which was once a very secure investment, now feels risky after the housing bubble burst of 2008. Also, because home prices have become so high, people get trapped in the cycle of renting, giving a large portion of their income each month to a landlord, with no long term investment. Lastly, I think the younger generation is hesitant to buy homes because of the commitment.

    1. the prof

      This begs a relate question: what has happened to rents? A rational consumer of housing compares what it costs to rent against what it costs to buy (which has to include taxes and insurance, maintenance, and the mortgage). Of course with a mortgage you do eventually build up equity in a home, but that has to be compared to the likelihood that the price will rise, and compared against other forms of saving.

  11. bashamc20

    The above graphs are extremely helpful when considering the housing market of times recent, as they show just how massive the housing market crash that began in 2007 truly was. Khang and I studied income in our post, noting its change during the Great Recession. Despite the massive magnitude by which income dropped during the recessions, the drop was still nearly nowhere as large as the drop in the housing index. The Subprime Mortgage Crisis occurred at a magnitude simply unseen before, as clearly represented by the above graphs, in which the only major decrease across all metrics occurs between 2007 and 2010. This speaks to the times that preceded the crash, during which mortgage bonds were widely regarded as one of the most stable investments in existence. That sort of assuredness was reasonably spawned by the sheer fact that, since we have begun such metrics, housing has never really crashed. This made the crash that more painful and drastic. When bonds previously regarded as rock solid defaulted, economic instability and veritable chaos ensued. Hopefully, now that we have seen what the housing market can do, the coming generations of bankers, Federal Reserve members, and general civilians will be more careful. However, collateralized debt obligations (CDOs) of subprime bonds have reentered the marketplace, so this may not be the case.

  12. gianakosa20

    Humans today have increasingly insatiable desires for more stuff. As standards of living increase, the population becomes more and more materialistic. This translates to the housing market, and explains the large increase in average square footage in houses over the past five years. People want larger, more extravagant homes than they ever have before. With this, houses have to be sold at higher prices. People, especially first-time home buyers, are then much more hesitant to enter the housing market. Instead, they rare renting housing. Renting appeals to those who are hesitant because it's not permanent; therefore, if another recession hits, they won't be bogged down with un-payable mortgages. I think the instability of the economy (and the recency of the 2008 recession) might make potential home-owners uneasy and then settle on taking the safer route of renting.

  13. Khang Truong

    Even with the economy improving, we should not expect spending on housing to recover to previous levels for a while. The 2008 crisis undermined faith in what had previously been seen to be a stable investment and the residual effects of the resulting uncertainty will certainly be with us for the coming years. What is interesting is the growth in home sizes; perhaps its a reflection of increasing standards of living, or perhaps it is merely a reflection of changes in culture and tastes.

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