Why are house price rises good?

In case you had not read your Daily Mail recently, we are in a recession...or is it a depression? No, wait...there are “green shoots” and the worst is over because house prices have bottomed, Woo Hoo. Actually run that past me again, why are rising house prices good?

The Myth of Rising House Prices;  During times of property booms, as typified by the never ending stream of TV property shows in the mid-naughties (“Changing locations in the sun" and the like), there was a perception that the rising value of houses was being manifested in the appearance of piles of cash in the understairs cupboard. This money, presumably brought by some kind of House Fairy could be spent on huge televisions, Pine clad hot tubs and exotic holidays with her blessing and meanwhile the world would be just lovely.

There are two things wrong with this (and I'm not including the Fairy bit);
House price rises assumed that you could sell your house at it's nominal higher value, a value which most people simple made up based on reading the Daily Mail for a few weeks. (The “DM” is truly the Devil's newspaper IMHO, but I digress). You might feel that you had an extra £20,000 to spend but it was an illusion, sorry.
For those people that actually remortgaged their houses, the Fairy did not actually bring a cupboard full of cash, she bought a drawer full of debt, the 25 years or so that you would have to pay the interest and capital on that debt back.
And that second point is the killer. All that rising house prices tangibly delivered was the ability to borrow more money, over a very long period of time, from your bank. BORROW. I don't remember anyone saying “Hey, look at my 60” whopper, and only 24 years 11 months more payments to go”....
I suggest that not one of the people who now has an outdated Plasma TV or forgotten Hot Tub or a long faded tan would have been worse off by funding them from a much shorter unsecured loan, saving up for the items, or God forbid deciding that 'other lifestyle choices are available'. But that is not the worst of it. Property as an investment is not sprinkled in Fairy dust either (but that's another story).

So the reason we are in the current pickle is not actually anything to do with Credit Default Swaps, it's simply that the line of people who believe in Fairies has shrunk, and those that do are still paying the price. The double whammy of not having the extra Fairy money to spend and even worse, having to pay her debt back from what money you do have...and I speak as someone who believes in Fairy money and still has the scars to prove the little creatures are real.

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