I think you need to take into account whether the award also fits your need. If you have to fly a day earlier than you would have, if you had paid for it, then there is a cost to that which reduces the value of the reward. The same applies to any "flexibility" you have to take with regards redeeming the award. On the flip side, if the award is exactly when you want it to be, on the flight/airline/time you want it to be, then its full value needs to be taken into account (assuming it wasn't available at a discounted price which you would have had the flexibility to take advantage of).
To use the house example, its all very well to say you would only pay $700k for the house, but that is only if it is a purely financial transaction. If you buying a house and you have specific needs and wants and that house is perfect and you had the financial means, would you go to $800k? Anyone who has bought a house knows this struggle.
A lot of redemptions are purely because you can, but a lot are also an enhancement on an experience you were going have and would like to enjoy at a higher level. For example, that reporter, at ausbt i think it was, that proposed and then did the awards trips/stays with his new fiance. The value of the points he redeemed would have to be taken at the full value because the whole experience was at such a higher level then it would have been.
WRT to the banking transaction, there is no comparison against the saving because you were using a credit card anyway and would have incurred the expense anyway. It only applies if you purchased the points or incurred some other cost (such as ATO credit card fees) to obtain those points, that would have prevented you from earning that interest in the first place.
We are looking at taking the kids on a 280k J RTW trip. I sure as hell won't pay for them to fly J (a heavily discount PE maybe), but the experience for them is worth at least a discount J (plus the $90 unattended minor fee I don't have to pay
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