[djajshgsjja]

It might be surprising given how hot the market is, but the # of homes actually changing hands is pretty small. Prop 13 provides a strong financial incentive for homeowners not to sell. With relativey few homes going on the market compared to the area’s population, the salaries of an unusually small slice of the income distribution can affect the average home price.

[usaar333]

Agreed that lack of selling is a huge issue. That said prop 13 isn't the only disincentive (and a relatively weak one - homeowners older than 55 can transfer their basis to a cheaper property). The other issues are:

1. (older residents) Capital gain taxes. If your house is up by $1.5M, selling incurs capital gains on $1M ($500k excluded). That's nearly $300k (20% of value) in capital gains taxes owed -- a huge hit to move to a cheaper place. And if you stay in place and die? Your heirs don't have to pay cap gains at all.

2. (newer) Mortgage tax deductability grandfathering. New buyers have $750k mortgage interest be deductible; old buyers get $1M. Guess you aren't moving until you bought recently!