WHEN house prices show a marked increase those fortunate enough to own property have a tendency to feel that they are better off. Conversely, a falling market leads to exactly the opposite feeling and encourages people to start thinking about tightening their belts.

As most property owners understand, the impression of wealth that accompanies a surge in house prices can be largely illusory because most people who sell then have to buy somewhere else to live.

Unfortunately, the illusion in the case of a falling market has additional consequences. In parallel with a rising market situation, properties have to change hands before any real loss is incurred, but because home owners sense that they are suddenly less well off the knock-on effect in the economy as a whole is generally adverse and can be highly significant.

Here in Jersey, the falling market will undoubtedly reinforce the effects of the recession which the Chief Minister, Senator Terry Le Sueur, has assured us is either here or on the way. Indeed, a vicious circle is in the process of being established because the falling market is in itself a sign that a recession has begun.

If we choose to ignore difficult economic circumstances they will, of course, not go away. That said, the effects of the housing market on people’s perception of the seriousness of conditions are worth considering carefully. If Islanders can be persuaded to accept the fact that purely psychological factors can influence real-world economics there will be less chance of our talking ourselves into a worse downturn than is warranted.

Meanwhile, although the Island’s many ‘haves’ may be bemoaning the £28,000 average decline in property prices, many ‘have-nots’ will see this as a favourable trend. The present financial climate is likely to mean that a home that is a few tens of thousands cheaper than a few months ago remains out of reach of a majority of first-time-buyer hopefuls, but many will at least be encouraged by a movement in what they believe to be the right direction.

It has been widely acknowledged that the Island’s housing market had raced ahead too far too rapidly in recent months. It is, alas, unfortunate that the present adjustment is so intimately linked to far less favourable trends.