Because of a recession, the value of a new house depreciated 10% each year for 3 yr in a row. Then, for the next 3 yr, the value of the house increased 10% each year. Did the value of the house increase or decrease after 6 yr? Explain.

Question

I feel that the house did not increase at all in the 6 years because the gains in the last 3 years offset the initial losses in the first three years.

What do you think?

Answer 1

After 6 yrs, the house decreased.

The gains do not offset the losses.

After three years the price is down 30% to start with, so the 10% increases are on calculated on a lower value.

Do an example. On $50,000, after 6 years the house is down in value approx. 3%.