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Interest rates will stay low for at least another 20 years to keep house prices propped up; This is exactly why we’re so bullish on the stock market
Topic Started: 28 Jul 2014, 05:54 PM (9,613 Views)
Shadow
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Evil Mouzealot Specufestor

Wisebear
6 Aug 2014, 03:14 PM
If you claim that replacement cost is a baseline for price then it does need to be static to be relevant.
If the baseline is dynamic what's the point of calling it a baseline and claiming it is relevant to price?
The point is that replacement cost, at any point in time, provides a baseline to prices at that point in time.

If replacement cost changes, then the new replacement cost at that new point in time still provides a baseline to prices at the new point in time.

Nothing is static.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Sydneyite
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Shadow
6 Aug 2014, 03:23 PM
Wisebear
6 Aug 2014, 03:14 PM
If you claim that replacement cost is a baseline for price then it does need to be static to be relevant.
If the baseline is dynamic what's the point of calling it a baseline and claiming it is relevant to price?
The point is that replacement cost, at any point in time, provides a baseline to prices at that point in time.

If replacement cost changes, then the new replacement cost at that new point in time still provides a baseline to prices at the new point in time.

Nothing is static.
^^^^ This! :re:
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Wisebear
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Shadow
6 Aug 2014, 03:23 PM
The point is that replacement cost, at any point in time, provides a baseline to prices at that point in time.


It's not a baseline if it can move, it's an irrelevance.

Quote:
 
If replacement cost changes, then the new replacement cost at that new point in time still provides a baseline to prices at the new point in time.
Why's it called a baseline then? If it moves it doesn't form a base.

Quote:
 
Nothing is static.
Exactly.
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newjez
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Wisebear
6 Aug 2014, 01:36 PM
Yet another clueless post from Sydneyite.

You build a house for $500k because the market values it higher. The market can then value it lower - prices change.
Of course people will still build houses at a market value of $400k because land prices will fall and a new equilibrium is reached at which they can make a profit.

Your thinking is clueless because it's static. As things change the market responds and prices change.

This is why b_b's nonsense about replacement cost being a baseline is laughable. Illogical thinking and an inability to understand that economies are dynamic and responsive.



Really? What calls have I made that have been wrong?
I have always thought the price of land is much more volatile than that of houses (anyone have a chart to prove or disprove this)

This would back up your theory wisebear.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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Shadow
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Wisebear
6 Aug 2014, 04:08 PM
If it moves it doesn't form a base.
Your logic is very flawed. Most bases can be moved.

But if you want to invent your own private definitions for commonly understood terms, then feel free to redefine 'base' as meaning 'immovable'.

Just don't be surprised when nobody understands your private language.
Edited by Shadow, 6 Aug 2014, 04:33 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Andrew Judd
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Shadow
6 Aug 2014, 04:31 PM
Your logic is very flawed. Most bases can be moved.

But if you want to invent your own private definitions for commonly understood terms, then feel free to redefine 'base' as meaning 'immovable'.

Just don't be surprised when nobody understands your private language.
I think Base line is the wrong term. Replacement cost of a house that is not over capitalised acts a guide to the price people will pay for it, and replacement cost for most houses, over capitalised or not acts as a strong emotional reason to resist a sale when offers are lower than expectations.

However no matter what the strong forces at work that act as an inertia to prices moving in either direction, prices at any point in time are determined by the very small number of houses that are available to be sold at any particular time, where some people are going to sell or buy no matter what the condition of the market is at that point in time, and it is the actions of these small number of people that drive what happens, even while the inertial forces make prices 'sticky' or change in 'slow motion'
Edited by Andrew Judd, 6 Aug 2014, 04:43 PM.
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Shadow
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Evil Mouzealot Specufestor

Andrew Judd
6 Aug 2014, 04:39 PM
However no matter what the strong forces at work that act as an inertia to prices moving in either direction, prices at any point in time are determined by the very small number of houses that are available to be sold at any particular time, where some people are going to sell or buy no matter what the condition of the market is at that point in time, and it is the actions of these small number of people that drive what happens, even while the inertial forces make prices 'sticky' or change in 'slow motion'
Houses selling below replacement cost is a situation that can only persist for a limited time.

If houses are selling below replacement cost then eventually no new houses will be built until prices move back above replacement cost.

So ultimately the replacement cost still pins prices to a level somewhere above the replacement cost.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Andrew Judd
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Wisebear
6 Aug 2014, 11:44 AM
B_B "Your complete lack of how financial markets work is highlighted in this post. The RBA may be the monopolist issuer of bank reserves but their value is determined on the open market. Only a fool would not understand this. "


IR's determined by market forces.
Both of these statements are wrong.

1. Nobody can possibly really believe the RBA can absolutely in all circumstances set short term interest rates without at times creating terrible consequences for the economy.

2. Clearly regardless of market forces, the RBA can at times overwhelm the market
Edited by Andrew Judd, 6 Aug 2014, 04:54 PM.
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Wisebear
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Shadow
6 Aug 2014, 04:31 PM
Your logic is very flawed. Most bases can be moved.

But if you want to invent your own private definitions for commonly understood terms, then feel free to redefine 'base' as meaning 'immovable'.

Just don't be surprised when nobody understands your private language.
My definition is the standard one: A foundation or starting point used for comparisons.

You now agree that the baseline is dynamic.
You must therefore also agree that it doesn't form any barrier to prices declining.
It is therefore irrelevant in that regard.

I knew you'd get there in the end but, as usual, you are painfully slow.

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Shadow
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Evil Mouzealot Specufestor

Wisebear
6 Aug 2014, 04:54 PM
My definition is the standard one: A foundation or starting point used for comparisons.
Nice try, but that's the definition of the verb 'to base'.

verb: base; use (something specified) as the foundation or starting point for something.

That's not the definition of the noun 'base' which means 'a conceptual structure or entity on which something draws or depends'

And from which is derived the noun 'baseline' which means 'a minimum or starting point used for comparisons'.

A base, or baseline, need not be fixed. In fact, most bases can move.
Edited by Shadow, 6 Aug 2014, 05:05 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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