Real estate metrics reveal a shocking statistic

___

Published Date 6/10/2024

Price per square foot. It’s a measure used mostly in the construction industry. But when you study how much this metric has changed in a mere five years’ time, it just might knock your socks off.

“A home’s price per square foot is a somewhat overlooked real estate feature. When shopping for a house, buyers are usually focused on the total size, list price, and location,” says Realtor.com’s Margaret Heidenry. “But price per square foot is now grabbing some rare attention: The latest monthly housing report from Realtor reveals that the typical listed price per square foot grew by a whopping 52.7% from May 2019 to May 2024.” She contrasts this with how the typical listed home price increased by 37.5% over the same period to its current nationwide median of $442,500.

Ralph McLaughlin, Realtor’ senior economist, says the price-per-square-foot metric is an important one to pay attention to. “The change in that metric is a more solid measure of how much more a home is worth over time than looking at changes in median list price.”

Bottom line? A home’s median list price can rise or fall without accurately reflecting what’s really going on in the market. “The median list price can fluctuate even if the market is stable,” McLaughlin explains. “For instance, an increased share of smaller homes on the market could lower the median list price without affecting the overall value of homes.”

The biggest growth in price per square foot is revealed in popular metropolitan areas such as New York City (+84.7%), Boston (+72.9%), and Nashville (+68.6%) since May 2019. Heidenry explains that the soaring price per square foot in New York City and Boston can largely be attributed to the COVID-19 pandemic-era shift in working norms, according to Realtor’s senior economic research analyst Hannah Jones. As remote and hybrid work arrangements became more common, buyers flocked to areas that offered both more bang for their buck along with a reasonable commute.

“This increased demand farther from urban downtowns led to scarce inventory and rapid price growth around New York City and Boston, particularly for homes that offered additional space to set up a home office,” says Heidenry.

Why Nashville? Another pandemic boomtown, Nashville got mobbed by homebuyers in a bid for more space at relatively more affordable prices as buyers from high-priced areas flocked to affordable Sun Belt metros. Demand created low inventory and climbing prices. And while inventory levels have recovered significantly in the area, home prices have not softened.

As for markets where the lowest return on price per square foot, look to Detroit, Baltimore, and San Jose, where growth remained under 27% per square foot.

The reason price per square foot is a crucial metric in real estate is that it allows for easy comparison between different properties, regardless of their size. “This helps buyers and sellers determine whether a property is priced appropriately for its location and condition,” says Heidenry. “Additionally, price per square foot helps in assessing market trends, indicating whether prices in a particular area are rising or falling.”

A rule of thumb, however: While price per square foot is valuable information, it can be deceiving. A smaller home can have a higher price per square foot versus a larger one, and that can skew the numbers – which is why most agents use comparable (comps) to provide a more complete idea of a home’s value. This takes into account the home’s condition, upgrades, location, lot size, and other features to make a more informed decision.

Realtor, TBWS

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker - NY Department of Financial Services; Licensed Mortgage Banker - CT Department of Banking; Licensed Mortgage Banker - PA Department of Banking, Licensed Mortgage Lender – FL Office of Financial Regulation

All rates, fees and programs are subject to change without notice.