CHM Blog

Not all square footage is created equal

A home’s square footage can be a nebulous thing. One whose 1700 square feet are used wisely or is appointed more elegantly can feel more valuable than that of a 2500 square foot dwelling that contains a lot of wasted space. But then there is the price. And the cost per square foot is more important than you may have surmised.

According to Realtor’s Margaret Heidenry, knowing the average cost for each square foot for a home in a given neighborhood is something you can use to your advantage as you shop for a home. “Typically, a home’s cost for a square foot is prominently featured on the listing—both online as well as in those property information sheets you get at an open house,” she says. “But a home’s price by the square foot doesn’t tell you much on its own. This number is best understood in comparison with similar homes in the surrounding market.”

Heidenry goes on to say that your next step should be to type in the city, neighborhood, or ZIP code of interest into a site like realtor.com/local. “This will give you the median cost per square foot for homes in that area of your city (as well as median asking price, closing price, and number of homes for sale in the local market—all useful info during a house hunt).” She says that when figuring the median or average price for each square foot in a home, it’s important to know the differences. “The average price is simply the arithmetic mean, calculated as the total of all home sales, divided by the number of sales. An average sales price can be skewed by a few higher or lower home values. The median, however, is the value separating the higher half of a data sample from the lower half. If all of the real estate property prices were lined up by value, the home sale in the middle would represent the median home value,” she says.

Median prices per square foot across the U.S. are (literally) all over the map. In Detroit it’s $24 a square foot. In pricey San Francisco, however, it’s $810. “The hotter the neighborhood, the higher the price per square foot,” says Realtor Anthony Stellini. No big secret about that. But Heidenry adds, “What you may not know is how this info can help you get a better deal on a house.” She advises that when you run your comparison of a home’s cost per square foot with the neighborhood median, you can use that information to help you determine whether a place is a bargain or overpriced. “Let’s say you see a home you love priced at $150 per square foot, but then you find that the median price for a square foot for the neighborhood is $135,” she explains. “This suggests the cost of the home you’re looking at could be too expensive—which spells an opportunity for you to negotiate for a lower purchase price. Just point out to the sellers that homes of similar size in the area cost far less. Or, conversely, if the median price a square foot is $135 but this home is only $120, you may have a bargain in your crosshairs that you should snap right up!”

Henidenry makes a few analogies: “A single-family home on 5 acres of real estate will generally be worth more than one with the same square footage, but on a small-size lot. A new home generally costs more. And a large house may cost more overall because of higher labor costs and total construction costs, but the market will only pay so much. A house may actually sell for less than you might expect, based on its size, if it is overbuilt for the area.”

Is this an exact science? Not by any means. “Because there are no official laws governing the process of measuring and calculating residential square footage, there are often wide discrepancies when it comes to the final figure,” she says. Heidenry concluded that while price per square foot provides a point of comparison, unless homes are completely uniform, it’s unwise to allow it to be your lone deciding factor.

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market.  This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events.  When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up.  Tracking these securities real-time is critical.  For more information about the rate market, contact me directly.  I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Lower

Mortgage rates are moving slightly lower today. The MBS market worsened by -37 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact your rates this week. 1) Central Bank, 2) China, and 3) Geopolitical

1) Central Bank: We get interest rate decisions from 5 major central banks this week including (listed in GDP size) United States, China, Japan, Great Brittan and Switzerland. Any of the first four can have a big impact on pricing. Japan and Great Brittan will get a lot of attention on their asset purchases and China will be in focus given (see number 2 below). Of course, the main focus of the global markets is Wednesday's Federal Reserve Open Market Committee announcement. The bond market will be looking for either a "nod" to November's FOMC for an official taper announcement or a walk-back from those expectations. We also get their Economic Projections and the markets will focus on the "dot plot" charts for growth, inflation, rates, etc.

2) China: The big story is about one of China's largest financial institutions that is in major trouble and the Evergrande bank is set to miss a series of interest payments by Thursday. Last week, they made headlines by restricting Chinese depositors from access to their systems and giving property at discounted values to creditors. They are the largest funder of commercial and residential real estate in that country. Will this be their "Lehman" event or will China bail them out?

3) Geopolitical: Our Debt Ceiling needs to be resolved by the end of the month and the massive $3.5T budget reconciliation is likely going to be smaller in scale when the smoke clears and not a reality until October/November.

This Week's Potential Volatility: High

This morning we're seeing some positive movement as people take money out of stocks. Volatility is high as the situation develops for China's Evergrande Bank.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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.

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