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When 1 does not equal 1

Someone I worked with years ago is feeling pretty lucky about the house they’re trying to sell. They feel good because they don’t really understand the math involved in the process of what they’re losing. I feel bad for them, but after a few hours total of repeated explanations I gave, they still can’t see that 1 does not always equal 1 when it comes to price changes.

I believe they bought their house for US$400,000 in 2004 — quite shy of the peak value of the property which was supposed to be about US$480,000 in mid-2006. This is a 20% upswing, a gain in value in pure dollars. In terms of real value gained, it is hard to say — how much value had the dollar lost in 1 year in terms of what they bought and their lifestyle?

Read this entire article at the housing bubble site.