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Eric
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 Posted: Wed Mar 18, 2009 8:15 pm GMT Post subject: Re: comparison to Boston Globe graph |
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Thanks for that admin. Glad I wasn't the only one wondering.
Graphs like that are extremely troubling to me. Clearly there is a right answer here. Homes are either more or less affordable today than they were in the past 20 years (in a given area). Most of the Globe's readers (even those who might be skeptical of the general cheerleading that led to the bubble) will be inclined to take a graph like that at face value. I certainly would if I hadn't also seen this thread. 
Eric |
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john p
Joined: 10 Mar 2006
Posts: 1820
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| Posted: Wed Mar 18, 2009 9:36 pm GMT Post subject: |
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| Quote: | | I wasn't really asking about the content of the article. It was the graph of P/I that caught my eye. It looks very different from the P/I graph in the original post. I was wondering if anyone had a simple explanation. |
If you want to understand a P/I ratio you have to break down and analyze prices and incomes.
My point was that if the majority of people think that their incomes will grow quickly you will see higher P/I ratios. You have to take a temperature reading to determine whether or not people believe that to be true today. Essentially it is just a simple return on investment calculation.
If you benchmark other areas where you don't get that much earning potential you see much lower P/I ratios. Boston is considered by some to be a "Superstar City" where your world class career can flourish which is why many people choose to live here after college. A similar basis is also applied when people evaluate one of these "Immune Towns". |
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