House prices are starting to turn. Halifax has reported the first quarterly fall since 2012 in the three months to April - blaming affordability and political uncertainty. It comes hot on the heels of news of the slowing market from Nationwide. However, we don't believe a word of it.
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A separate Halifax survey back in April looked at how confident we feel about the housing market, and found a very different picture. Some 58% of people expect the average property price to rise in the next 12 months - compared to just 14% who expect house prices to fall.
There are seven good reasons for this - sadly none of them based in reality. It all comes down to the way our brains work - which means we tend to think house prices are set to rise - regardless of evidence to the contrary.
1. Recency bias
This tendency means we place more emphasis on events that have happened very recently - over and above things that happened a while ago. Several years of house price rises have given us the sense that 'house prices rise'. We forget the big bubbles and crashes of the past because they are further away - and thus feel less important.
2. Herd behaviour
This is our tendency to believe there's safety in numbers. Other buyers, sellers, and estate agents, all seem to be setting high prices, buying and selling quite happily, so we assume they can't all be wrong - despite the fact that they can.
3. Familiarity bias
We have faith in things that seem close to home - and what could be closer? It means it takes a lot to shake our faith in the intrinsic value of our own property.
4. Confirmation bias
This is our tendency to believe the things that correspond with our world view, rather than treating all information as equal. It means we discount the Halifax research, and listen to our neighbour who says that prices will always rise in such a desirable neighbourhood.
5. Hindsight bias
We look back at major events - like house price crashes - and highlight clear indications that it was imminent. We forget that at the time, nobody spotted it, and so when we get subtle signals that house price falls are on the way - we choose to ignore them.
6. Endowment bias
This basically means that we place a higher value on an item that we own ourselves. Given that we own our own property - and it's the most valuable thing most of us will ever have - we cannot imagine it ever being worth less.
Humans are incapable of putting an absolute value on anything, so we work on relative prices. When it comes to house prices, our relative price tends to be the amount we paid for it. We assume that this is what our house is worth, and cannot therefore envisage a time when it falls below this price.
But what do you think? Is our faith in the housing market justified? Let us know in the comments.