Thomas Grillo reports on three months of price declines in home prices in the Boston area.
Economists say the double-digit price appreciation levels on the last two years could not be sustained, and prices were bound to come down. They say slightly lower appreciation levels do not equal a housing collapse of the magnitude that the region saw in the late 1980s and early 1990s.
Still, brokers say the anemic economy, a lack of consumer confidence, and slipping home prices could cause a crisis of confidence among homeowners. Already, realtors are seeing sellers pulling homes off the market rather than sell at substantial discounts.
Meanwhile, in today’s New York Times, Paul Krugman writes about deflation.
Here’s how it can happen: First, for whatever reason, the economy becomes depressed. The central bank responds by cutting interest rates Ëś but it turns out that even cutting rates all the way to zero isn’t enough to restore more or less full employment.
At that point the economy crosses the black hole’s event horizon: the point of no return, beyond which deflation feeds on itself. Prices fall in the face of excess capacity; businesses and individuals become reluctant to borrow, because falling prices raise the real burden of repayment; with spending sluggish, the economy becomes increasingly depressed, and prices fall all the faster.
Here’s a Google News search on deflation.