A New Calculus for Housing

When I studied math, I understood how to calculate the slope of a line, but its curve? That was confusing.

My teacher called it the “second derivative.” And it was important, because it told you which way the slope was changing. When the slope was down but the second derivative was positive, then the line was curving up. Eventually, the slope would be positive.

That’s where we seem to be in the housing market. The latest figures show that prices are still falling around the country. But they’re falling less intensely. And in some places they’ve stabilized.

This is important. If prices have stopped falling, a lot of home-buyers will take advantage of generational lows in mortgage rates to secure housing. And since we haven’t been building as many homes now as we need to satisfy new household formation, the inventory of unsold homes could evaporate quickly. After that happens, price increases are inevitable. And the banks can safely start lending again.

Before a market can recover, the second derivative has to turn positive. The recent positive curve factor in housing could change to positive moves in pricing before you can say “Isaac Newton.”

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-04T21:16:47+00:00May 27th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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