[quote=FormerSanDiegan][quote=Russell]There is a twist on replacement cost in this article. Basically, don’t wait to buy until replacement cost influences the market instead of bubble and recession inventory…
Replacement cost is not truly meaningless as the OP states. Rather, it’s relative importance is rather negligible at this stage of the cycle. There will be a time where it is important.
A similar thing happened on the way up. From 2002-2005 the rent that could be obtained on a property did not matter in determining price. Currently, it does matter. As with all things fundamental, sometimes their influence on the market is ignored, but eventually they do matter.
Replacement cost is a fundamental measure and strongly influences production, as mentioned above.
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Agree. And it’s no coincidence that stock market values mean revert around Tobin’s Q, which is: Market Value of Assets/Replacement Value of Assets.
Asset market values – real estate and otherwise – mean revert around replacement value. (If they don’t, then capitalism is broken… which it might be for a while.) But as we have seen over the last decade, prices can stay disconnected from values for very long periods of time.
