French theoretical physicist predicts 26% housing drop

[powayseller]

PhysicsWeb writes a study from a French theoretical physicist, who says prices will drop 6% annually from 2005 – 2011.

I calculated the price drop is 28%, from looking at the graph ($176 to $126)

I’m not sure how something can drop 6% annually for 6 years, for 28%, so if anyone wants to enlighten me… (6×6=36, not 28).

[kiki]

The discount is compound:
If price today are 100,
first year 6% drop is 94% of 100 = 94
second year 6% drop is 94% of 94 = 88.36
..
sixth year 6% drop is 94% of 78.07 = 73.39

from 100 today to 73.4 in six year: 26.6% drop

or 1 – (0.94)^5 = 26.6%

[john67elco]

Talk about history repeating itself. Its a roller coaster that has tracks going towards the sky is what I always say.

“You say housing market will keep rising? Then your stupid for not buying as many homes as you can right now!!!!!!!!!

[Anonymous]

Similar to Bank of England, we now have Congress and the RE industry trying to pass the “Empowering American Homeownership Act of 2006” to give easy loans to first-time buyers. (Sunday’s LA times has an article)

[Lickitysplit]

It’s actually the “Expanding American Homeownership Act of 2006”

Links:

House of Rep. HR 5121
Washington Post

Committee summary:

“H.R. 5121, Expanding American Homeownership Act of 2006:

“Introduced by Rep. Ney on March 6, the bill would modernize the 72-year-old Federal Housing Administration (FHA) in order to decrease premiums for borrowers and increase access to homeownership.

“H.R. 5121 would base mortgage insurance premiums on the borrower’s credit history, loan-to-value ratio, debt-to-income ratio, and on FHA’s historical experience with similar borrowers. The legislation amends the National Housing Act to change the factors for determining the maximum single-family mortgage amounts insurable by FHA. In addition, FHA would be allowed to insure up to the full median house price in the area, as opposed to 95 percent of the median house price.

“Additionally, the bill would amend the National Housing Act to provide more flexibility to cash downpayment requirements by eliminating the three percent requirement allowing the HUD Secretary to determine the appropriate cash requirement based upon the likelihood of default.

“Rep. Ney said, “H.R. 5121 seeks to bring FHA back into business and to restore the FHA product to its traditional market position. American families need safe options when purchasing a home, at a fair price. Families need a way to take part in the American Dream without putting themselves at risk. Families need FHA and through this comprehensive legislation FHA will be made more efficient and streamlined which will improve competition in the prime home loan mortgage industry.”

“The FHA was created by the National Housing Act of 1934 to provide stability and liquidity in the market in order to broaden homeownership, to protect lending institutions, and to stimulate the building industry. Prior to its creation, mortgages did not exceed 50 percent of the home value and did not extend past the fifth year. At the end of the five years, mortgages had to be paid or renegotiated.

“The FHA provides only mortgage insurance for those loans that meet FHA-established underwriting standards. Since 1934, FHA has insured more than 33 million loans and is the largest insurer of mortgages in the world.

“FHA is one of the few government agencies to operate entirely based on the fee-income derived from its programs, which means the taxpayer does not pay or subsidize the agency.

“The Subcommittee on Housing and Community Opportunity held a hearing April 5 on the Administration’s proposed reforms for FHA’s single-family mortgage insurance activities.

“A manager’s amendment offered by Rep. Ney that was agreed to by a voice vote would: increase loan limits for two, three, and four-family residences; mandate a study to examine the mortgage insurance premiums charged for home equity conversion mortgages or reverse mortgages; invite state licensed mortgage brokers to participate in FHA as determined by the HUD Secretary; and encourage HUD to use a portion of the funds FHA receives from premiums in excess of what it pays out in claims to upgrade FHA’s current technology and report on the progress to Congress.”

[Author]

Posts