The Right Real Estate Offer

Which of the following would make you more excited about the outlook for a hypothetical real estate market?

  1. We expect prices to double over the next two decades.
  2. We expected prices to climb a little less than 3.5% per year.

Most people, I think, would say #1. But, as you likely already know from me asking the question, the two are the same, with 3.5% per year compounded over the period equaling a real estate pricing double.

Why do I ask? Partly because I’m always interested in these kinds of framing questions — so little changes so much — but also because I ran into just such a thing in a CIBC real estate report today. The report said that Canadian real estate prices were expected to double over the next two decades, and then later wrote that prices would climb 3.4%-3.5% a year over the next few years. Subconsciously, I was more excited about the doubling than the latter figure, even when I reminded myself that they were the same thing.

Related posts:

  1. Real Estate Price/Map Mashup
  2. Real Estate: This Time it’s (Ominously) Different
  3. Google Trends on the Real Estate Crash
  4. California Real Estate Follies, Part XXXIV
  5. The Post- Real Estate Boom Economy

Comments

  1. That framing set up also sounds like a variation on a classic cognitive bias — anchoring — where the doubling number seems so much stronger than the 3.5% annual gain.

  2. worth says:

    On forecasting: what could this “expectation of doubling over the next twenty years” possibly be based on? Net immigration or population growth in Canada over that time (also a forecast)? Glut or lack of land to develop? Or (most likely) just plain history? If it’s based on the fact that real estate prices in Canada have gone up 3.5%/yr on avg for the past 50 yrs, why can’t they just state that fact along with their feeling that nothing’s really expected to change for the foreseeable future and therefore people can look forward to more of the same 3.5%/yr in perpetuity, rather than producing/touting a ridiculous “forecast of the next 20 years”? And I apologize to Paul, Barry, the CIBC, and Canada in general for my foul mood, but this just reminds me of people who are glued to the evening news in Phoenix in July so they can catch the weather forecast. Folks, it’s been real hot for a long time, it was hot again today, and it’ll keep being hot until the winter. Phoenix is hot, Canadian housing is stable, and that’s the way it is.

  3. I live in Los Angeles, so the real estate market has always been out of whack, but I’d rather a see a third option, which is 2.5% growth. We’d be better off with a much smaller growth rate for a few years, rather than a crash. We’ll have to see how all these sub-prime foreclosures affect the market (which will take a couple of years to ripple out).