I've been searching my brains for ages trying to understand how house prices can stablise (or rise) when unemployment is heading towards three million. I've been confused about why sterling is so resiliant in the face of warnings from the IMF about our ability to repay national debt and the threat of losing our AAA rating. There seems to be so much fundamentally wrong with our economy yet the recession, broadly speaking, seems to have been a fairly mild so far.
Tonight I had a break through. Curious to know what everyone else will think.
1. Spending and debt are like heart disease or lung cancer.
There is a human tendancy to worry less about things that are a long way off in the future. Heart disease and lung cancer kill significantly more people than terrorism. Terrorism is in the present, and therefore is somehow much scarier and horrific. It commands far more resources and hype. Our debt fuelled economy allows people to live for the here and now. And the reality is that most people in this country want that. They don't care about saving for their retirement, or pay for their future family needs. They don't care how or when they will repay their debts. As long as they can make the minimum payments each month they are happy. Saving and budgeting are largely extinct nowadays. Individual responsibility has gone and has been replaced with the attitude that if the bank lends them the money then they are entitled to spend it. It's the bank's problem if at some point in the future they can't repay the debt.
The British are spending lemmings. If they are given the spending power (credit or cash) they will spend it. The British won't budget, they won't exercise restraint, they won't think about the future they will just spend. The rest of the world knows this. Politicians know this. Because our wreckless approach to spending the government can borrow safe in the knowlege that as long as they put spending power in peoples' pockets they will burn it and generate taxes. The desire to spend will always be there.
2. Too many people believe property is a great investment.
Even after two years of falling house prices Brits still believe the property is a great (long term) investment. This belief is hardcoded into people now. Sufficient numbers of the population believe this such that it becomes a self-fulfilling prophecy. Even though high house prices do nobody in society any good whatsoever, as soon as the mortgage tap is turned back on house prices will go up. They will go up because there are more people who believe prices 'always go up' than there are house price crash subscribers and people with sufficient grasp of the economy to understand properly what has gone on and why we are where we are.
We need to face the facts. The Labour government gave us high house prices and a 'live for the here and now' attitude to money and responsibility. We are outnumbered. Brits will borrow and spend like lemmings. That wreckless borrowing and spending, and the self-fullfilling beliefs about housing is the new paradigm. High house prices are here, and here to stay. We will pay for it terms of anemic growth and erosion of the values that helped to build our country.