I ask why anyone would build a house KNOWING they will lose money,
Nobody builds a house KNOWING they will lose or make money. Houses take time to complete, and the future is unknowable. So your question begs no answer, because it is a nonsensical question. However, there are reasons why someone would begin building a house now when the market price for said house is currently below the cost to build. It is called risk taking.
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Just in case you really can't follow the discussion, the point is that if prices fall below replacement cost then developers won't build because they know they would lose money.
They can't possibly know that with 100% certainty. The market price might rise while they are building. Conversely, a developer might start building when market prices are above replacement cost, and in the intervening period the market price falls below that cost.
Only by ignoring the preceding 'if' could you conclude that my statement was 'incorrect' as you claimed.
Here is my 100% correct and factual statement for you again...
'If the replacement cost today is $500K then that is the baseline today. Prices won't fall below $500K on anything more than a temporary basis, because if prices are below $500K then developers will stop building homes until prices rise above $500K again so they can make a profit.'
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a developer might start building when market prices are above replacement cost
Yes, that is when developers will build new stock.
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there are reasons why someone would begin building a house now when the market price for said house is currently below the cost to build
Show me the developers who started developing new stock while market price was below build cost. Links please?
Only by ignoring the preceding 'if' could you conclude that my statement was 'incorrect' as you claimed.
Here is my 100% correct and factual statement for you again...
'If the replacement cost today is $500K then that is the baseline today. Prices won't fall below $500K on anything more than a temporary basis, because if prices are below $500K then developers will stop building homes until prices rise above $500K again so they can make a profit.'
Yes, that is when developers will build new stock.
Show me the developers who started developing new stock while market price was below build cost. Links please?
Shads Lots of people paid too much for land. Heck in my area along land is sometime half what it was. So Stockland mark it down aqnd you lose value. That is what is happening around me.
If the replacement cost today is $500K then that is the baseline today. Prices won't fall below $500K on anything more than a temporary basis, because if prices are below $500K then developers will stop building homes until prices rise above $500K again so they can make a profit.
Or land prices will fall so that they can make a profit.
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In 2020 if the replacement cost is $800K then that will be the baseline in 2020.
Or in 2020 if the replacement cost is $300K then that will be the baseline in 2020.
I must say it's much better talking to you now that you've come to realise that replacement cost is dynamic and not some ridiculous supporter of house prices like those other silly bulls.
you've come to realise that replacement cost is dynamic and not some ridiculous supporter of house prices like those other silly bulls
None of the bulls said replacement cost is static. In fact the bulls recognise that despite being dynamic, replacement cost still provides support for house prices.
The silly bears seem to think something that is dynamic can't provide support.
Banks need to attract deposits (not to make loans) and one potential source of lower cost savings habits are foreigners.
However, most foreigners save in their own currency so if our banks want to make use of their ‘saving habits’ (or money printing) they need to be converted into $AUS.
Either the Australian Banks do this or the Foreigner does this. Of course someone somewhere is accepting the risk of currency movements but we will ignore that for the moment.
The process of converting foreign saving habits (savings) into $AUS pushes up the value of the $AUS.
Thus when the banks seek sources of saving habits offshore the process pushes up the $AUS.
The attraction of doing so is that the foreign savers will accept a lower rate on their savings than a Oz local would. This is why Term Deposit rates have been sagging as our banks have started increasing their usage of off shore saving habits.
If the govt (via a direction to APRA) tells the local banks that they must limit their usage of the saving habits of foreigners (at the moment we are talking about $AUS300-400B) and start to wind it down, there will be less demand to exchange foreign savings for $AUS.
This means there is downward pressure on the $AUS.
On the other hand our local banks will need to pay a bit more to attract term deposits and those rates will start to rise.
And that is without the RBA doing anything.
(Of course the RBA can resist this process by cutting the target rate but cutting the target rate does not force people to deposit at term (or whatever the banks need) so there is a limit to its ability to control mortgage rates.)
In summary one of the reasons the $AUS is high (there are as HnH notes multiple drivers) is because we have come to depend on borrowing from foreigners to keep our home mortgage rates lower than they would otherwise be.
How we fund our household real estate debt addiction drives up the $AUS and results, in part, in an unbalanced (excessive imports) and increasingly hollowed out economy.
In fact the bulls recognise that despite being dynamic, replacement cost still provides support for house prices.
I think I'm now beginning to understand your position: Things that are dynamic provide support but things that are rock solid don't provide any support at all.
If I scrambled my brain would I be able to think like you?
Things that are dynamic provide support but things that are rock solid don't provide any support at all.
Incorrect. Dynamic and static things can both provide support.
But in terms of the housing market, nothing is static. All the fundamentals supporting the housing market are dynamic.
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If I scrambled my brain would I be able to think like you?
I doubt you'll ever think like me. You've spent the past three years being completely wrong about the housing market. All your bearish predictions have failed to eventuate. You have got nothing right. On the other hand I have been pretty accurate with most of my predictions since I started posting on forums like this in 2007.
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