This doesn't look good......

A housing crash doesn't just happen out of the blue. Long before prices fall, there are inescapable signs that something is wrong.

The first warning sign is price itself. If we see a sudden departure from long run trend growth, then we know something bad is happening. Affordability data will also start to flash red. The houseprice to income ratio is a very important early warning indicator. However, these numbers have been screaming danger for a very long time, and yet prices kept going up.

Over the summer, the housing market turn a nasty turn downward. As yet, not all the numbers are pointing south, but the evidence of a turning poin is growing by the day. In some regional markets, prices are already slipping, while in other more buoyant markets, prices are merely stagnating.

Today, the British Bankers Assocation issued some very nasty numbers on Mortgage applications. Here are the main points from their press release.

The value of September's gross mortgage lending at £18.5bn was only 3% higher than in September last year.

In real terms, gross mortgage lending has slipped since the retail price index is pushing 4 percent at the moment. This indicates, somewhat modestly, that housing activity is slowing.

Underlying net mortgage lending (gross lending minus repayments and redemptions) rose by £5.8bn. This was between Augusts increase (+£6.1bn) and the recent average (+ £5.6bn) and leaves annual growth still at around 14%.

This is one of those "lets find at least one reassuring number" that the housing industry desperately needs when the market softens. Everyone is supposed to take comfort that that nice looking 14 percent growth rate. It suggests that the housing market is still humming along. However, what exactly does it mean? Well if the gross number is slowing but the net number is rising, this must mean that repayments and redemptions are slowing considerably. In other words, people are, for some reason, not paying off their mortgages terribly quickly. Good news, perhaps, for the banks, but there is little comfort here, for the amateur housing speculators.

In September there were 160,879 mortgages approved (12.1% fewer than in September 2006) with an aggregate value of £18.1bn (5.8% lower than last year). The average loan approved for house purchase was £152,300, some 8% higher than a year earlier.

Ouch, ugly numbers. If the number of mortgages approved are down, then it must be the case that sales are down. This is a clear sign that the market is slowing.

As we go forward, data like this will gradually start to come out, first as a trickle, then as a flood. Within about a year or so, the volume of bad news will be so heavy that the unrealistic and unjustified optimism, which characterizes the market today, will be buried. It will be crushed by an avalanche of despair and financial ruin.

Adopt the brace position. This baby is going down.