Thursday, April 15, 2010

TIMING REALESTATE PRICES WITH IMAGINARY NUMBERS

While in engineering school I learned a system of math used for the calculation of voltage and current in alternating current circuits. Though it involves imaginary numbers (numbers that are negative when squared), its application to the physical world is very real as is the imaginary power.

The cyclical movement of alternating current between positive 120 volts and negative 120 volts has a lot of the features of the cyclical movement of the real estate market. The current, or flowing electrons, are 90 degrees out of phase with the voltage, or power, so that when voltage reaches it maximum, the current on the wire is 0 and when the current reaches its maximum, there is only imaginary power on the line.

Real estate market activity can be visualized using the same cyclic movement between positive and negative real estate prices using imaginary numbers. At the peak of housing prices, housing sales slowed as everyone held on for further price increases. Similarly, housing prices will be bottomed out when housing sales slow due to people waiting for prices to drop even more. When that time comes, however, most people will think it is crazy to even consider buying a house in the same way that everyone thought it was crazy to sell when housing prices were at their peak.

We are impressed with how many times housing prices have cycled between positive and negative, just like alternating circuits, during our 30 years of investing in realestate.

3 comments:

Koji said...

Hi - I had some questions for you on living in Hilo, I've read through your blogs but I was wondering if you could be more specific with regards to cost of living.

For a husband and wife, what would you say the average monthly cost is for

rent (assume ~ 1500sf house close to town)
utilities
food
transportation (1 energy efficient car and 1 4wd)
health insurance
moderate leisure activities


thank you so much,

Koji

Harry Christen said...

At the high of houses costs, houses revenue stunted as everyone used on for further price raises. In the same way, houses costs will be bottomed out when houses revenue slow due to people awaiting costs to drop even more.


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HcoRealEstate said...
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