Robert Barrie: Why we must not read too much into house prices, fascinating though they are to many

The housing market - and in particular house prices - have a seemingly endless capacity to fascinate people. Some are interested in the UK housing market and house prices; others are concerned with the bigger picture, which means the US housing market and house prices; and others are interested in new ideas and concepts, which means the continental European housing market and house prices. We are all estate agents now.

An interest in these things can be normal and healthy, but it shouldn't turn into an obsession and, by itself, it's not a proper basis for an economic forecast.

For example, a couple of weeks ago we read that a slowdown in the US housing market could lead to a slowdown almost everywhere else. It's a popular view in financial markets and it's clearly possible, but it's not the certainty that many seem to assume.

Housing is important and it clearly matters, but so does everything else. The risk is that we pay too much attention to it and not enough to everything else. Forecasts based on views about housing and not much else are very simple and clear, and very often wrong. The recent UK experience is illustrative. The fact is that UK house prices are rising again - it's not even clear that they ever really stopped for any length of time - and housing market transactions and lending are also stronger again.

For years it was difficult to find forecasts of anything other than house price falls, and substantial ones at that. The gloomy forecasts for the housing market and house prices were associated with an even gloomier forecast for the economy. The same thing is happening in the US and it's possible that it will start again in the UK now that rates are rising.

The initial idea, of course, was that rates would be cut because house prices were falling, not that house prices would fall because rates were rising.

At one point last year the prospects for house prices and consumer spending did look uncertain, but that didn't last for very long. The positive correlation between the two looks as if it's come back, having been away for a while. Both are much stronger than they were.

It doesn't mean that there's a causal relationship there, it's just a correlation. That means they depend on other things, such as income, confidence and rates, more than they depend on each other. The correlation comes about because they depend on the same sort of things.

For most of us, rising house prices aren't really a big deal. We own the houses we live in because in a lot of cases there aren't a lot of alternatives. If the price of the house that we live in goes up, but so does the price of the one that we're about to move to, it's not obvious that we are any better or any worse off at all.

It's notable that the strong house price rises of a few years ago were not associated with particularly strong consumer spending growth. There was a substantial rise in borrowing - including mortgage equity withdrawal - but it was matched by a rise in saving. Some people borrowed to join the housing market, while others did the reverse and took cash out of it.

The point is that the second group didn't spend any more as a result - or if it did, it did so only to the same extent that the first group spent less.

It's possible, of course, that if house prices really were to fall they would have a larger effect in the opposite direction. For all sorts of reasons, the effects might not be symmetric. A good reason for being concerned about a sustained period of house price rises is that they may make subsequent falls more likely. Having said that, in our view, it would take significant price falls - of a sort that almost no one expects in the UK at present - to have those effects. It's much more likely, in my view, that we will continue to see a high degree of stability in the main determinants of house prices and, as a result, a high degree of stability in house prices themselves.

The UK experience also suggests the correlation between house prices and interest rates is even less reliable than the one with spending. It's more often negative than positive. In part, that's because rate changes typically have their origins elsewhere. In fact, they are often outside the UK economy. If you want an idea of where UK rates might be going in the coming months, it's probably more useful to look at something like the OECD leading indicator - which has hardly any UK content - and the manufacturing purchasing managers' survey than at the housing market and house prices. Those indicators suggested there were likely to be limited rate cuts last year and now suggest the reverse is likely to be the case this year.

The conclusions are clear. Those analysts and commentators who put a view about the housing market and house prices at the centre of their forecasts for the economy and monetary policy - be it in the UK or the US - run a serious risk of being wrong about all three.

It's even true of continental Europe. I remember being told that the reason Germany couldn't recover was that house prices hadn't risen. The more important story is almost always something or somewhere else.

There may have been a stronger correlation between the housing market and spending in the US than there was in the UK and there has been more housing-related construction activity, but a single variable forecast for any economy is a risky thing, all the more so when - apparently - it's the global economy.

The author is the head of European economics at Credit Suisse