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.
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!
For Aussie property bears, "denial", is not just a long river in North Africa.....
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?'
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'
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.
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
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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