Price per square foot is a crucial but often overlooked indicator in the real estate market. When buying a home, buyers typically focus on the total area, listing price, and location. However, according to Realtor.com®'s latest monthly housing report, from May 2019 to May 2024, the typical listing price per square foot increased by 52.7%. This substantial increase has drawn significant attention.
During the same period, the typical listing price rose by 37.5%, with the current national median home price at $442,500. Realtor.com's Senior Economist Ralph McLaughlin noted, "Price per square foot is an important metric worth paying attention to. Changes in this metric more reliably measure home value than changes in median home prices." In essence, while median home prices might fluctuate, they might not accurately reflect the true market conditions.
McLaughlin explained, "Even if the market is stable, the median listing price can fluctuate. For example, an increased proportion of smaller homes on the market can lower the median listing price without affecting the overall value of homes." Therefore, changes in price per square foot offer a more accurate depiction of market conditions.
Analyzing markets with the most significant price per square foot increases reveals substantial price hikes in popular metropolitan areas. Since May 2019, the New York City metro area (+84.7%), Boston (+72.9%), and Nashville, Tennessee (+68.6%) have seen the largest increases in price per square foot.
Realtor.com's Senior Economic Research Analyst Hannah Jones attributed the price surge in New York and Boston largely to "shifts in work norms" during the COVID-19 pandemic. She stated, "With remote and hybrid work arrangements becoming more common, buyers flocked to areas within reasonable commuting distance that offered good value." Increased demand in areas outside city centers led to inventory shortages and rapid price increases, especially for homes providing additional space for home offices.
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Similarly, Nashville has become a popular "emerging city," attracting buyers looking for larger spaces at relatively affordable prices. Jones explained, "Buyers from high-cost areas have flocked to the more affordable Sun Belt." This new demand caused inventory to shrink and prices to climb. Although inventory levels in the area have significantly recovered, home prices have not softened.
In contrast, markets with smaller price per square foot increases include Detroit (+23.2%), Baltimore (+24.8%), and San Jose, California (+26.3%).
Price per square foot is a key indicator in the real estate market because it facilitates price comparisons of different properties regardless of their size. This helps buyers and sellers determine whether a property is priced appropriately for its location and condition. Additionally, price per square foot helps assess market trends, indicating whether prices in a specific area are rising or falling.
However, despite its value, price per square foot is just one of many data points that buyers and sellers should consider. Cara Ameer, a bicoastal real estate agent with Coldwell Banker in California and Florida, cautioned, "Price per square foot can be misleading. Smaller homes might have a higher price per square foot compared to larger homes, which can distort the data."
Therefore, Ameer recommended not focusing solely on price or price per square foot but using comparables or "comps" for a more comprehensive understanding of a home's value. This involves considering the home's condition, upgrades, location, lot size, and other features to make a more informed decision.
