You buy a house for $220,000 in a neighborhood where home prices have risen 5% annually on average. You suspect that growth in home prices will slow to an average of 3.5% per year over the next five years. If your growth estimate of 3.5% growth is correct, how much less will your house be worth in five years compared with 5% growth

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Lindsey Santos

17 August, 15:53

You buy a house for $220,000 in a neighborhood where home prices have risen 5% annually on average. You suspect that growth in home prices will slow to an average of 3.5% per year over the next five years. If your growth estimate of 3.5% growth is correct, how much less will your house be worth in five years compared with 5% growth

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Jon Blankenship · Answer 1

worth of the house when the price rises 5% annually on average

Fv = Pv (1 + r) ^n

where Pv = $ 220000, rate = 5 / 100 = 0.05 and n number of years = 5

Fv = $ 220000 (1 + 0.05) ⁵

but it was estimated that it will rise by 3.5% annually

Fv for 3.5% = $ 220000 (1 + 0.035) ⁵

the amount the house will worth less compared to 5 % growth = $ 220000 (1 + 0.05) ⁵ - ($ 220000 (1 + 0.035) ⁵) = $ 19490.96