A snap survey by RICS has backed up the figures produced by Hometrack that homebuyers are demanding increasingly savage discounts from sellers.

Hometrack puts that average discount at 10%, whereas RICS suggests 9%. But either way there will be a spread around that figure, so there will be some pretty deep discounting being accepted by sellers keen to rid themselves of their property.

As mentioned before, place these numbers against the data on asking prices produced by Rightmove and it all paints a grim picture.

The recently released British Bankers' Association data on banks' mortgage lending provides yet more evidence of the extreme weakness on the demand side in the housing market.

The number of mortgage approvals is running at roughly a third of the level of a year ago and it is well known that without substantial deposits lenders are very reluctant to approve mortgages.

This lack of market demand is being met to some extent by a reduction in the supply, as many disappointed sellers take their properties off the market and some decide against bothering to sell.

Economic theory would suggest that this reduction in supply is helping to support the price - falling though it is.

But what happens if the supply suddenly increases?

And here are three possible reasons that are put forward to suggest why this might happen:

  • With job losses mounting the number of forced sales may rise
  • Buy-to-let owners that have banked on capital gains rather than rental yields may fear large losses and judge it is time to bail out
  • The growing number of people holding back on selling in expectation of an upturn may at some point feel they can hold off no further

Certainly the auctioneers are already seeing a big increase in distressed sales.

Should we see a sharp increase in homes on the market, simple economic theory as described in the "law of supply and demand" would point to a sharp downward shift in prices.

Naturally I can hear the cry that a drop in price should increase market demand. But by how much in these credit crunched times? And advocates of a more sophisticated economic model might suggest that there is a greater likelihood of potential buyers retreating until the market bottoms out.

The main questions as I see them are: How likely is it that we might see a surge is homes coming on the market? How many potential buyers are there out there if the price drops? How do we interpret supply and demand and their relationship in the context of the housing market?

After what we have witnessed - in the US in particular - over the past few weeks, there is every reason to take a dark view when answering the above questions.

Either way these are worrying times for everyone. A collapse in house prices may appear good news for those keen to buy, but the ripples (or should I say storm surge) such a collapse would generate will wash over not just the house-haves, but the house-have-nots as well.