Price/sq ft varies drastically with location (location, location, location...). I just sold at about $97/square foot in the Chattanooga area and am in the process of buying for around $140-per in the Medina, Ohio area. Those are the going rates for each respective area. Of course, you could move 5 to 10 miles away from each site and possibly have a very different cost/sq. ft. for a similar sized home on a similar-sized lot but in a different city, with a different school system and such. There are many factors involved here.
True. It's quite fungible.
But to mortgage lenders it's the gospel. Not to mention realtors, who use price/SF as a marketing tool to salve people's ego's.
Yet another example of 'value' being distorted in our culture.