How Low?

US house prices have now receded for a staggering 57 consecutive months in a row, new data revealed this week.

To compound the misery, the first three months of 2011 combined accounted for the largest quarterly retreat in prices since late 2008 – posing the question; how low can they go?

The data from property seller, Zillow, is more pessimistic than what tends to be reflected in the Case-Shiller Index (the industry benchmark); however data from mortgage company Fannie Mae reinforces the continued downward trajectory of the market.

Recently Fannie May revised its expectations of US house prices for the second quarter, down from -2.6% to -5.6% after firing up a computer model it uses to assess the market.

The program takes into account nearby house prices for a property that’s on the market and of comparable size, plus other attributes of a house such as property taxes and previous sales history.

Supply is overwhelming demand now as the US Government’s tax credits to encourage house purchases have recently expired and there are still thousands of foreclosed properties hitting the market.

Fannie Mae and its mortgage company counterpart Freddie Mac, sold more than 90,000 foreclosed homes in the first quarter, however they still hold 218,000 which is more than 30% than they did a year ago.

This means strong numbers of home owners are continuing to walk away from their houses and push the keys back through the letter box and raising the number of foreclosed properties in the process.

According to Zillow, some of the cities hardest hit by the property price slide are Detroit, Atlanta, Minneapolis, Chicago and Miami-Fort Lauderdale – areas which either are suffering structural economic downturn or simply were at the forefront of the over-speculation in property prior to the financial crisis.

On a separate note, the correction in the commodities market – most analysts are calling it a computer triggered correction, rather than a crash due to a series of negative thematic factors lining up – could spark other countries, such as Australia, to consider what it means for their property markets.

Australia and a number of markets across Asia are yet to experience a contraction in property prices – and perhaps they won’t.

Of course, events in the US property market are quite different due to high land taxes and a legal structure that allows people to walk away from their property debts.

However for those markets that have piggy-backed on the back of the commodities boom, a message of warning has to be that back in mid-2007, few would have predicted the complete unwinding of the US property market.

Never say never then?

With national debts still stratospherically high in the US and some European countries, the world could yet experience a major financial meltdown and this could trigger similar devastating issues in other property markets.