During the housing mania of the early 2000s, people would tell me that California housing appreciation averages 5% per year. Therefore when they plugged in a 5% compounding appreciation rate, values seemed justified and rational. When I pointed out that a 5% average rate does not equal a 5% compounded rate due to periods of decline, their eyes glazed over. It sounds like somatics or sophistry, but when projected over 30 years, a few fractions of a percentage point makes a large difference when it’s compounded. A high yearly average rate of appreciation can still lead to a negative return if the decline is deep enough to wipe out years of excess growth.