The mortgage meltdown was allegedly caused by mortgage lenders lending money to people who were not qualified to purchase the homes. Aside from whatever part fraud had to do with this calamity, most of us would probably agree with this statement. I certainly believe it.
Having made that statement, I am of the opinion that this accusation can be carried a step further, more specifically, to hold accountable those who purchased larger homes than they could afford. This theory implies that many, if not most, of the foreclosures would not have occurred if the people who are losing their homes, had purchased smaller, more affordable homes, within their means. With this in mind, I examined national statistical data, pertaining to historic average home sizes in the United States. Based upon the above hypothesis, I set out to perform a research project to determine if we, as a people, have been living higher on the housing hog in recent years.
My findings included the following.
►In 1900, the average-sized home was 800-sq. ft.
►In 1950, the average-sized home was 1,000-sq. ft.
►In 1980, the average-sized home was 1,700-sq. ft.
►In 2008, the average-size home was 2,473-sq. ft.
►In 1900, the average household size was 4.6 people.
►In 2010, the average household size was 2.59 people.
►In 1900, the average home cost $4,000.
►In 2010, the average home cost $178,000.
►In 1900, 47 percent of all homes were owner-occupied.
►In 2010, 67 percent of all homes were owner-occupied.
►In 1900, average individual income was $600 per year.
►In 2009, average individual income was $40,000 per year.
►In 1900, the average worker made $2 per day (.25 cents per hour/48-hour work week).
►In 2010, the average worker made $160 per day ($20 per hour/40-hour work week).
The above data was assembled using a variety of resources, including the U.S. Census Bureau, the National Association of Realtors (NAR), the National Association of Home Builders (NAHB) and other sources that I consider to be reliable. Due to the lack of adequate and accurate statistical data from the early 1900s, I made estimates in some cases. I also rounded off numbers for the sake of simplicity.
The results of the survey are quite telling. While the data was not intended to be technical in nature, it offers undeniably antidotal evidence of the excesses we have enjoyed at the expense of our economy.
I offer the following as evidence to support my conclusion:
►In 1900, the average person consumed 174-sq. ft. of living space.
►Today, the average person consumes 935-sq. ft. of living space.
►In 1900, the average cost of a house per occupant was $900.
►In 2010, the average cost of a house per occupant was $69,000.
►In 1900, the average worker must work 16,000 hours or about eight years, before payroll taxes, to purchase an average home.
►In 2010, the average worker must work 8,900 hours or about four-and-a-half years, before payroll taxes, to purchase an average home.
Today, we enjoy homes with more sophisticated plumbing, heating, air conditioning, electrical, appliances, insulation, kitchens, bathrooms, high-quality decor and much more than was in the homes of 1900. We invest fewer of our working hours to purchase a home than our forefathers did four generations ago, and we enjoy the spaciousness of castles, relative to the bygone days of the early 1900s. Most of us would be able to enjoy more modest homes, which would fall well within our budgets and still be light years ahead of what our predecessors had to accept. No, the American dream is not dead; it is still very much alive. It is up to those of us doing the dreaming to fashion our dreams within the realms of reality and within our budgets.
We can expect the homes of the future to be smaller, especially those built for first-time homebuyers. We can expect more multi-family housing to be sold. More of us will be sharing housing with others in an effort to better capitalize on the efficiencies of having housemates and extended family living under our roofs. Low downpayment loans will still be available to those responsible people, with good credit and who are willing to purchase homes in price ranges that they can afford. Approaching housing in a more common-sense manner will permit all of us to save more of our earnings to better prepare for rainy days and retirement.
Based upon the above data, little imagination is required for all of us to envision a reduction in our housing costs at levels approaching 10 to 20 percent, while still allowing for state-of-the-art housing and high levels of homeownership. We partied hard, buying homes that were beyond our means. We then woke up with financial hangovers, and we have taken our medicine. That does not mean that we cannot get it right this time. The U.S. economic engine offers us, as homeowners, efficiencies never dreamed of by our ancestors. We can all live in homes that offer us many times the utility of those enjoyed by our grandparents, while staying within our budgets and living within our means.
Yes, many of us in the United States and, for that matter, all around the world, have grown quite accustomed to living too high on the housing hog. The time has come for us to exercise better judgment in investing our shelter dollars. We can own beautiful homes, of which we can be very proud, while concentrating upon spatial efficiency.
Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, e-mail [email protected]
or visit his company’s Web site, www.appraisalsanywhere.com.