If the chancellor’s stimulus for the UK’s pandemic-stricken economy had been as effective as his help for the housing market, his worries would be over. The property market seized up during the first lockdown, but relaxing stamp duty rules and reducing interest rates resulted in a housing boom even while the rest of the economy was slumping. By the end of 2020, UK house prices were at record levels, the 7% annual increase being the steepest for five years; mortgage approvals were at their highest since 2007, rising more than tenfold over six months; and web searches for properties were up 30% on a year earlier. Lawyers and local authorities could not cope with so many transactions.

So, as the country went back into tiered lockdown – while retailers went bust, unemployment rose and the national debt soared – the housing market was one less worry for Rishi Sunak. Or one more. Because while a property explosion may seem better than a crash, an overheating market is just as unhealthy. And the further it rises, the further it has to fall.

But because of the deadline, many people planning to buy after March brought forward their purchases. The pre-March volumes, therefore, comprise normal sales, delayed deals, additional purchases and acquisitions brought forward. That suggests that many sales that would otherwise have proceeded during the rest of the year will already have happened. So while economists talk of “V” or “W-shaped” recoveries, the housing market looks set to have fallen, soared higher than ever, to now be facing a slump and, at some point, a weak recovery. In such a volatile market, if there is a “new normal”, how will we recognise it when it arrives?

The chancellor was right to realise the importance of the housing market in the UK – and the danger of allowing it to fall. The gross value of a person’s property is probably their greatest asset. There are 5.5m buy-to-let investments supplementing incomes. A 10% fall in house values would push owners with 90% mortgages into negative equity, wiping out their savings and leaving their lenders with insufficient collateral. A 20% fall does more than double the damage. In past price slumps, negative-equity victims walked away, leaving lenders to sell abandoned homes – for discounted prices that knocked values even further. Defaults and arrears erode lenders’ capital; repossessions damage their reputations.

And while rising prices may remove some would-be buyers from the market, falling prices should dissuade all rational purchasers. Why buy an asset with a diminishing value whose decline will be exaggerated by the leverage? Better to wait until the market turns. But if owners cannot sell easily, mobility of labour suffers as people find it harder to seek jobs elsewhere.

For a chancellor, forfeiting £4bn of stamp duty to avoid that vicious circle makes sound sense. Even so, house prices are widely expected to fall after the March cliff edge. The Office for Budget Responsibility forecasts an 8% drop but a full recovery in 2022. Nationwide, by far the biggest building society, has a central case that sees a 10% decline this year, with a steady rise returning to today’s values by 2025. But its worst-case scenario (calculated before vaccines were approved) maps out a 30% fall over two years, with prices still down 10% in 2027.

Lenders can cope, however. Bank of England stress tests consider a 33% fall in prices. Mortgage providers had been cutting their costs before the pandemic as competition to lend, driven by ring-fenced banks, plus ultra-low interest rates squeezed the margin between borrowing and lending rates. The Bank of England’s coronavirus-induced interest rate cut in March 2020 emphasised the need for reducing management costs at lenders, but working from home may have identified more longer-term opportunities to trim outlays.

Early in the pandemic, the Financial Conduct Authority (FCA)delayed the Mortgage Switching Consultation Paper that would have seen intervention to help customers who were reluctant – or struggling – to switch. This meant it avoided adding to lenders’ burdens, and its own. But the need now may be even greater – Bank of England figures show that remortgaging with a different provider fell 40% in the eight months after February 2020 despite the rest of the home loans market booming. However, the FCA paper remained unpublished at the year-end.

Even if full switching is still a battle to be fought, other changes are going ahead. England’s Help to Buy scheme, mentioned earlier, will, from April, be open only to first-time buyers. It remains only for new properties, giving an interest-free government loan of 20% of the price (40% in London), with buyers needing only a 5% deposit while conventional mortgages finance the rest. The price ceiling was £600,000 but the revised scheme will have regional caps – down to £186,000 in the North East. And it will last only until March 2023, potentially creating another cliff edge. Scotland’s scheme is unaffected.

And from April, shared ownership will be part of the government’s Affordable Homes Programme, with a “right to buy” for tenants. The minimum ownership in the part-rent deal will be cut from 25% to 10% and buyers will be able to increase their share in smaller increments.

This will be a bad year economically, but any outcome less bad than expected will be regarded as good. The key is not that the glass contains 50% of its capacity but whether the tumbler is being topped up or drained. Half-full and falling is worse than half-empty and filling.

Will would-be buyers who miss March’s stamp duty deadline – unable to find a property or unable to complete the deal in time – shrug off their misfortune and resume their goal without the pressure of a frenzied market? After all, workers prevented from spending during the lockdowns increased their savings (and those without jobs won’t be buying). Or will the would-be buyers dejectedly withdraw while watching house prices fall?

The difference between optimism and pessimism is a fine line but one that points to the direction of our economic future. Each state is self-fulfilling. But the mood is dictated by small factors: the collapse of a well-known brand can affect consumer confidence more than national unemployment statistics; setbacks on a vaccine could count more than increased inflation; and an unpopular tax more than cancels out an increased benefit. Reports of falling house prices could further undermine the market. For very many, decreasing house prices could impact their finances more than being fired. Faced with uncertainty, not moving house may be our easiest of savings.