i also have trouble understanding what it means–from what i know, the HPI is an index, not actual home prices. it is a weighted average of repeat sales (how the value of a property sold at least twice has changed, not the absolute value of the property). if the ratio was something like home sales prices/annualized rents, then the ratio would obviously be 15-20 in san diego for many areas.
So, the graph says the value of homes is going up much fater than rents, and what no one knows is if it will come back down (either from dramatic drops in the HPI from repeat sales–those 550k otay homes now selling for 350k, or from similar dramitic rise in rents, not likely, or some combo, etc); or plateau as it has in the past. So I’ve been reading a ton and thinking about this housing and ecnomy issues.
My personal opinion, is much like the Soviet’s excessive defense/military focus/spending strained them to breaking, our current ineffective and incompetent spending and focus in iraq will hurt the economy short term and possibly long, as why we focus there, china and others expand their global footprint, influence, etc. So I see further trouble for our economies–so that globalization will help those at the top and make it harder for those lower down to move up in terms of salary, purchasing power, etc. But who knows, if suddenly the gates are shut to immigrants and Visa workers, and the same jobs get filled at higher wages, then you have better salaries and purchasing power on the lower end, but then those costs have to be passed on to consumers, well something has to change…
jim