An Ignored Reason for the Mortgage Melt-Down in the United States

Here's an interesting quote from a real estate website:



The size of the average American home has more than doubled over the past half-century. The most recent statistics from the National Association of Home Builders show that the average American home grew from 983 square feet in 1950 to 2,434 square feet in 2005. In 1950, only one percent of homes built had four bedrooms or more, but 39 percent of new homes had at least four bedrooms in 2003. Garages have become almost obligatory, with only eight percent of new homes built without a garage, as opposed to 53 percent built without one in 1950.



Think about the implications of the information contained in that paragraph. Since most contractors charge for home construction on a square foot basis, and apparently bid their jobs out on that basis, this means that as the size of homes went up, so did the cost of building those homes. Now, for the most part, incomes also kept going up, so people could afford the increase in the size of the average home and didn't think about what that increase meant.



Well, here's what it meant: It meant more energy usage per home; it meant more money being tied up in real estate instead of other assets; and it meant that when times got bad, a lot of homeowners couldn't make the mortgage payments. It costs a lot less to pay for a 1300 square foot home than it does to pay for a 2600 square foot home.



Why did this happen? Homes went from being a way to house people to a way to show off your wealth. Homes went from being a practical thing to a status thing. Homes went from a place to raise your family to an investment. Children who grew up in "McMansions" began to believe that they were entitled to live that way, and so, when they got married, wanted to start where their parents had left off.



One way to solve the housing crisis is for Americans to start thinking of homes as a way to house people and not as a way to show their status, or as an investment. This won't happen overnight, but it will happen because America can no longer afford the "average American home."