The Great Compression
Since there has been so much talk in the media about this is the worst economic period since The Great Depression, I thought I would play off of that topic with some commentary on compression…specifically, price compression.
The Congress just passed the $787 Billion stimulus plan and in it was another $8,000 tax credit apparently now only for first time home buyers. You see, many in the business believe that we need to get the first time home buyers back and then everything can start moving again. Sorry, I think they are wrong.
What’s happening as the credit availability continues to contract, prices on the highend are getting compressed. We don’t see the compression so much any more on the low end. When I mean low end, I mean under $250,000.  The mid range would be $250,000 – $400,000…higher end $400,000 – $800,000 and luxury over $800,000…super luxury I suppose north of $1.5 million. In any event, a $600,000 house is starting to look a lot more like a $500,000 home in this market and a $500,000 homes is starting to look like a $400,000.  A $1.5 million home might well be a million dollar home today.
Between the investors, scavengers, and first time home buyers, the low end is being taken care of and I would expect to see some price stability there this year. Washington and the real estate lobbiest such as the National Association of Realtors believe that we can start the economic engine of the home buying cycle by getting first timers back in to the market in a big way. That’s a nice step, but I do not see this having much of an impact on the rest of the market in ’09.
There is more pain ahead for the mid, upper and luxury brackets this year…just my opinion of course.
