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November 16, 2012


John Rowe

Excellent discussion about inelasticity. I have some things to ad about my local situation- South Bay CA, Saratoga, Sunnyvale, Cupertino..
Yes, nothing is coming on the market. But foreclosure and underwater are not the issues. I live within a pistol shot of forty oldies, most of whom bought their homes when they were worth dirt and are holding on. Here are the reasons:
1) Prop 13 locks our real estate taxes at a nuisance rate. The guy who buys the house next door pays ten times what we pay.
2) Selling give a 500k exemption on taxes and a pay-through-the-nose rate on the rest. So: hold.
3) Real estate is rising at 10+ percent a year locally. All the homes are above their values before their collapse. Why sell? To invest in stocks which have done nothing over 12 years, CDs which pay nothing, bonds which pay 2% in the face of massive inflation?
4) Local banks hold foreclosures at full value on the books unless they close and sell or sell short. Then they have to write losses against earnings. So banks are holding bad notes that are appreciating at 10% given the run-up in prices.
So I have contributed to the mystery of inelasticity.
I think my facts are right; perhaps Dick can correct my errors in the next blog.
Dick, thank you. All is appreciated.

Kaarle Lumme

Increasing the price of home is normal yearly but i never thought that there is reason like this for increasing price of home.In Finland many of real estate are increasing their price of home it is because of the fact that home sales is also increasing and it is a sign of good real estate.

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