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From what little I know about deflations, they tend to be self perpetuating. Just as inflationary bubbles feed ever rising prices, deflations feed sometimes rapidly falling prices. The difference is that real estate tends to be “sticky” on the way down as sellers only sell at lower prices when they absolutely have to. Still, why buy today if the price will be lower tomorrow? At some point buyers will step in, but what a painful ride!

As for a housing led recession?

Speaking about my own situation, our house is for sale.

There are lots of good ones to choose from around here, and I’d sure like to do my part and buy one. But I have to sell first. I think a lot of people are in my situation. There’s a logjam, and when it loosens up, things will be better.

From what little I know about deflations, they tend to be self perpetuating. Just as inflationary bubbles feed ever rising prices, deflations feed sometimes rapidly falling prices

A self-feeding deflation would require banks and brokers stopping their lending which they are not. There is tightening in subprime as there should be, but people who have the income to support a loan can get one. The problem is really in the investment (i.e. speculative) property market.

I looked at sales of townhouses in Springfield VA and saw a slow market through last year in the low 400's, tending towards 400. Early this year some banks unloaded their TH's at less than 300k. This fact has not affected current asking prices (still in the low 400's). Most buyers will still pay 400 even though they could get a wreck for 100k less. The banks aren't happy about the sitution, but they can write off the losses for now (which is obviously what they are doing looking at the headlines).

Currently a massive credit bubble is unwinding, and the house price deflation is just a side effect of that. The Fed will try to keep the credit bubble pumped up as long as possible and credit market losses and writeoffs need not be deflationary.

As for a housing led recession?

Possible but other sectors can also pick up the slack. The banks and builders are laying off, but the R/E agents and remodelers are mostly self-employed and aren't as easy to track. But for now around here (northern VA) they still appear to have plenty of work.