Say home prices have fallen 20% to date, and you expect them to fall another 10%. How much will they have fallen in total? A guest just now on CNBC just said, in passing, that would make for a 30% overall home price decline.
Oye. No it’s not. If home prices fall 20%, and then fall another 10%, the second 10% is from a lower base price, not from the original price. As a result, the total percentage drop is less than the sum of the two figures, or 28% in total.
Granted, both price declines are large losses — and don’t even get me started on how useless these forecasts are, in the first place — but that’s not my point. It bugs me when people can’t get basic math right, but still want us to trust them with their money-making ideas.