The best when to analyze a market is to think in terms of substitution. Are the prices of comparable opportunities equal or higher to my choice? If so, then I'm probably paying about right.
In real estate, for example, is that house I'm thinking of buying on this block similar to the one for sale a block away? How similar? Is it in like condition? Is it less expensive? Is the block as nice? If so, then I'll probably go to the substitute and leave my original choice behind.
The idea of choosing substitute opportunities has me thinking about recent news of some popular people leaving St. Louis. We always are sad to see talented people not "choose" St. Louis. It makes some of us feel a little rejected.
When people leave, especially in such a strong neighborhood place as St. Louis, it can make us feel a little less validated about our own decision to choose St. Louis. For a long time, St. Louis has had issues and challenges in retaining young people. However, when people leave, they are making a similar substitute decision.
What are they substituting? Weather. Traffic. History. Neighborhoods. Friends. Cost of living. Gritty urban fabric. Stable economy. Strong academic institutions. Great parks. Easy access around town. Lots of free amenities. Great restaurants. Overall, a great quality of life.
A friend and I were discussing this issue yesterday. I was asking him about what sorts of things would motivate him to leave St. Louis. Then we talked about it in terms of the overall substitution choice. You might get better urban density somewhere else, say in Manhattan or downtown Chicago, but what about the cost of living? You get the idea.
So what about you? Are there substitution choices so powerful that they'd motivate you to leave town? Besides a lover, a job, a teaching assignment?
For years, weather was a huge choice, driving millions of people to California. However, now other factors in a California choice, such as congested roads and high living costs, are having would- be emigrants to the west coast reconsidering the California option.
If you put everything in the lifestyle substitution basket together, you have your overall quality of life. Has anyone ever seen a quality of life ranking for US Regions? It would be interesting to see how St. Louis rates.
However, these lists always seem a little suspect. San Francisco probably rates very highly in terms of quality of life. However, unless you're an investment banker, a real estate tycoon, a dot-com millionaire, or a trust fund baby, you would have a hard time affording it.
If you're like most average income Americans, by choosing San Francisco, you'd be living in an area with great scenery, resort weather, congested roads, and probably crowded into a tiny apartment or a house under a freeway interchange. Which substitutions are you willing to make?