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.
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.
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.