It sounds un-English to ask, but why should we care about falling house prices? Of course, some people are going to lose as the buy-to-let market collapses. But some will lose their shirts on the Derby on Saturday. No one considers the Derby a threat to the wider economy. Why is the housing market different?

The analogy is not so daft. Just as some punters will win on Saturday, so there will be winners from falling house prices: the potential first-time buyer who can at last afford a place, the growing family who can get a bigger house, or the cash-rich investor hoping to grab a bargain.

Then there are others who don't care. People who are happy living where they are aren't bothered by falling house prices, any more than non-gamblers care about the Derby.

The losers will be those who are hoping to sell soon, speculative punters or people planning to trade down. But their losses are others' gains, just as one man's loss on the Derby is another's win.

Granted, there has traditionally been a correlation between house prices and consumer spending - although it has weakened since 2000 - but this is because the same things affect both: interest rates, incomes and general optimism. It's not because house prices directly affect spending much.

This, however, is not the only reason why news of falling house prices need not disturb us. The news refers, naturally, to average prices. But averages do not tell those who care about house prices what really matters - what has happened to the price of their own property.

What matters are not macroeconomic factors so much as local ones. Is a big local employer taking on more staff? Are the schools improving? Is public transport getting even more appalling?

“Location, location, location” is a cliché because it is true. In the US, a study by economists at DePaul University in Chicago found that only a fifth of the variation in house-price inflation in particular postcodes could be explained by city-wide prices. Mostly, house prices move for very local reasons. Those who have had their place valued by an estate agent, or have stopped drooling over Sarah Beeny enough to pay attention at the end of Property Ladder, will know this. Experts' valuations of a particular property often vary by 10 per cent or more.

The Nationwide's report that average house prices have fallen 4.4 per cent in the past year is only a fraction of the idiosyncratic uncertainty about your own house. This makes housing a riskier investment than it seems. If the television news reported the price change of 22 Acacia Avenue, Sidcup, every night as it reports the

FTSE100 index, people would realise that bricks and mortar were not as safe as they thought.

It also means that the reaction to lower average prices could be muted. Many of us have what psychologists call an optimism bias - we look on the bright side. So people use idiosyncratic uncertainty to believe that their house price has held up. Sure, we say, our neighbour's house sold for £20,000 under the asking price. But theirs is a dump compared with ours.

This is why housing turnover collapses in downturns; sellers hold out for silly prices so buyers walk away. But it also means that even those who care about house prices do not cut their spending by much.

All of this means a house-price crash needn't push the economy into recession. The American experience shows this. House prices in the US have fallen by 16.6 per cent since they peaked in July 2006. Retail sales have risen by 5 per cent.

There is, however, a caveat. House prices can affect consumer spending through what economists call the collateral channel. Some home owners cannot spend as much as they would like - they are, in the jargon, liquidity-constrained. Rising house prices relieve this constraint by increasing the collateral that they can use against loans. Because falling house prices cut collateral, they might affect spending.

But this effect is small, because liquidity-constrained homeowners are a minority; others can dip into their savings or just aren't spendthrifts. John Muellbauer, of Nuffield College, Oxford, has estimated that, with all else equal, a 10 per cent rise in house prices causes spending to rise by only 0.4 per cent.

And even this occurred only when the banks were happy to lend against consumers' homes. Before the 1980s - when credit was rationed - house prices had no net effect on spending. Sure, a few people won't be able to get a secured loan to buy a fancy motor car. But the banks, in their parlous state, might not lend to them anyway.

So perhaps the housing slump isn't a threat to the general economy. Indeed, it could even be a good thing. It will remind people that if you want to get rich, you have to do more than look at four walls. While this is a terrifying prospect for some, it is, surely, a healthy development.

Chris Dillow is an economics writer at the Investors Chronicle

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