Typically, a drop in prices – whether the price of an apple or the price of a house – stimulates demand and brings new buyers into the market. In the case of houses, price declines often occur in the context of a broad-based weakness in the overall economy.
In their book “Jumpstart: The Economic Unification of Germany”, Hans-Werner Sinn and his wife, Gerlinde, pointed out that, to avoid rising unemployment in the eastern part of Germany, wages there would have to remain below those in the western part until eastern German companies had increased their capital stock, and thus labour productivity, sufficiently.2 But at that time, policy makers were already confronted with a strong migration movement from eastern to western Germany.