Comments on: Raise prices you *&^%% idiot! http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/ - solving problems one market at a time Tue, 06 Jan 2009 09:34:38 +0000 http://wordpress.org/?v=2.3.1 By: Wisest of the crowds » Discrimination at Redfin! http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/#comment-1452 Wisest of the crowds » Discrimination at Redfin! Mon, 14 May 2007 05:10:43 +0000 http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/#comment-1452 [...] Real Estate Recent Posts Discrimination at Redfin!Munching through the ecosytemSelling your soul in sub-primeRaise prices you *&^%% idiot!ArdellDellaLoggia TKO in 2nd round versus AVM's [...] […] Real Estate Recent Posts Discrimination at Redfin!Munching through the ecosytemSelling your soul in sub-primeRaise prices you *&^%% idiot!ArdellDellaLoggia TKO in 2nd round versus AVM’s […]

]]> By: karim http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/#comment-1148 karim Sat, 05 May 2007 15:11:08 +0000 http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/#comment-1148 Greg, thanks for the comment. I certainly see your point and I think it is a reasonable position. The bottom line answer is I don't know if new buyers would emerge if transaction costs had more variety. Intuitively it seems so but I have no substantial evidence of this. The sub-prime mess was born of, among other things, back loading these marginal expenses of housing and naturally you saw home ownership in this country rise - substantially in some markets. Of course this is all unwinding now but clearly marginal buyers emerged when marginal friction was removed (hidden). You are feet on the ground and so if you think demand is inelastic, then it seems that there may be greater economic rents you could extract (you can charge higher prices). When I think of the housing market here in SF and see people compete and someone walks away with the prize based on paying less than a half of one percentage point of value versus another person, it seems that demand has substantial elasticity. The opposite question you might consider is what would happen if everyone RAISED prices. Do you think demand would change? Greg, thanks for the comment. I certainly see your point and I think it is a reasonable position. The bottom line answer is I don’t know if new buyers would emerge if transaction costs had more variety. Intuitively it seems so but I have no substantial evidence of this. The sub-prime mess was born of, among other things, back loading these marginal expenses of housing and naturally you saw home ownership in this country rise - substantially in some markets. Of course this is all unwinding now but clearly marginal buyers emerged when marginal friction was removed (hidden).

You are feet on the ground and so if you think demand is inelastic, then it seems that there may be greater economic rents you could extract (you can charge higher prices). When I think of the housing market here in SF and see people compete and someone walks away with the prize based on paying less than a half of one percentage point of value versus another person, it seems that demand has substantial elasticity.

The opposite question you might consider is what would happen if everyone RAISED prices. Do you think demand would change?

]]> By: dougco http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/#comment-1138 dougco Sat, 05 May 2007 06:02:09 +0000 http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/#comment-1138 You tell it like it is my man! You tell it like it is my man!

]]> By: Greg Swann http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/#comment-1137 Greg Swann Sat, 05 May 2007 04:03:25 +0000 http://www.my-currency.com/blogs/karim/2007/05/04/raise-prices-you-idiot/#comment-1137 Is it your belief that a lower marginal transaction cost -- representing at most 10% of the purchase price, including all closing costs, and dipping no lower than 3% under any circumstances -- would induce significant numbers of people to need or want or actually use more residential real estate? This topic has come up before, and I find it implausible. The number of pillows you can use at any given time is determined by the number of heads you have. Reducing the marginal cost of real estate transactions -- a notion that ignores the trade-offs inherent in limited-service business models -- seems unlikely to increase your actual need for real estate. Overbuying as a status symbol <I>might</I> increase if costs went down, but by how much, taking account that the potential savings nets out to an absolute maximum of 7% of the total purchase price? Is it your belief that a lower marginal transaction cost — representing at most 10% of the purchase price, including all closing costs, and dipping no lower than 3% under any circumstances — would induce significant numbers of people to need or want or actually use more residential real estate?

This topic has come up before, and I find it implausible. The number of pillows you can use at any given time is determined by the number of heads you have. Reducing the marginal cost of real estate transactions — a notion that ignores the trade-offs inherent in limited-service business models — seems unlikely to increase your actual need for real estate. Overbuying as a status symbol might increase if costs went down, but by how much, taking account that the potential savings nets out to an absolute maximum of 7% of the total purchase price?

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