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+00:00 May 27th, 2009|Global Market Update|0 Comments

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