These are hair-shirt times. Financial gloom is the fashion. No one can publicly admit to seeing the bright side without inviting ridicule and scorn. In January, Baroness Vadera, the Treasury Minister, was derided when she claimed to discern signs of faint green shoots. Since then, public figures have responded to any positive sign with the utmost caution.

Even in the hype-filled housing market, sentiment has been subdued. Nationwide Building Society this week reported the fourth successive month of house price rises. Even after seasonal adjustment, the quarter-on-quarter trend was significantly up. Yet no one has felt ready to suggest that prices might actually have bottomed out.

As recently as last week, a Reuters poll of City economists found that they expect house prices to drop overall by 8 per cent this year, on top of the 16 per cent slide in 2008. If those analysts are to be proved right, prices therefore still need to drop by 8 per cent in the next six months because so far they are almost unchanged from last December. So the consensus is for steep falls this autumn.

The housing bears say that the market is driven by first-time buyers and first-time buyers can’t get mortgages. Therefore, prices will slide. But the market could equally be said to be driven by last-time sellers — people trading down to smaller properties as their children leave home or they retire. It is this army of natural sellers who are declining to do the natural thing and trade down. Why? Perhaps because they can’t see a better place for their money than property. Deposit accounts yield next to nothing. Bonds are for the politically naive. This, after all, is the generation who lived through the inflation of the 1970s and 1980s and know the fatal flaw in fixed-income securities.

And they have understandably lost faith in shares and share-linked products, such as pensions and endowments. The chart, right, emphatically tells why. Total returns from shares (dividends plus capital gains) have collapsed in the past 25 years. The chart shows smoothed returns over the previous ten years. So, for example, the first bar shows that annual returns in the decade to 1986 averaged 15 per cent. The last bar shows that average annual returns in the ten years to 2008 were negative.

For want of anything better, natural sellers of property are holding off, or trading down but buying other properties for their children or grandchildren. Returns from other asset classes would have to pick up markedly for that mindset to change. Property is still pricey on many historic measures, but people understand it and embrace it as the one investment category that they can control and manage themselves without the loathed and mistrusted financial services industry taking a cut.

At the risk of doing a Vadera, I will stick my neck out and suggest that house prices have already bottomed out, that February will prove to have been the low point for the residential property market (average selling price £147,700) and that we are already five months into the start of an up cycle — albeit a patchy, anaemic one.

Nothing is more important to economic recovery than stability in house prices. I am not one of those who believe that high property prices are a good thing; joy over the rocketing cost of shelter is one of the puzzles, and societal delusions, of the modern age. But having got here, the last thing the economy needs is a return to lower prices. Stability, with prices rising in line with wages, is what is needed.

Stable prices would have two immeasurably beneficial effects for the wider economy. They would boost consumer confidence and they would dramatically strengthen the battered banking sector — and, by extension, the dreadful public finances. After job security, nothing helps to lift consumer spending like appreciating (or at least non-depreciating) home values. These values also underpin the entire banking industry, because most loans are secured on property. It is not borrower defaults as such that hit banks; it’s defaults by borrowers in negative equity. Any rally in property prices will save the banks billions in potential losses averted.

That not only preserves capital, which can then be used to back other loans. It also reduces the risk to the Government, which has in two years handed out £1,260 billion in loans, guarantees and equity injections to bail out Britain’s banks and building societies.

There are few things economic to be thankful for just now, but our stubborn, sometimes perverse, love of residential property is one of them.

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