Future house price prediction

Question

When using house price estimation, will we be using non-compound growth rate or compounding rate, and why?

Answer 1

When using house price estimation, will we be using non-compound growth rate or compounding rate, and why?

You will use both compounded and non-compounded depending on what you are trying to estimate.

If you want a conservative estimate you will use a 0% rate. You estimate that prices will not move.

If you want a pessimistic estimate you will guess that at the date in the future when you need to sell the value will be be down x%. It doesn't matter the path to that point, the only thing that matters is that when you want to sell the value is lower.

If you want to be optimistic you expect that every year it will go up y%, which would be compounded.

Interestingly if you are trying to project your future property taxes you might use a very optimistic rate of growth of the value; and a pessimistic estimate that has the tax rate increasing each year.

Nobody can predict what the future holds for the property value of your house. It is influenced by local issues, state issues, national issues and the ones specific to your individual property.