The lies being told about the property market drives us crazy. So it’s time for the truth, the whole truth and nothing but the truth.

Residential property values are falling right across the country and those falls will pick up as the year goes on. Yes Virginia, property does go down in value just like any other investment.

It is so frustrating to see all the For Sale signs, hear the anecdotes of friends and relatives having to slash prices to get a buyer but then read real estate agent or media reports cherry picking the increasingly rare “good news” sales.

It gives a very false perspective of reality.

We asked Louis Christopher’s property analysis group SQM Research to run some numbers for us on how much residential property values have fallen from their peaks across all capital cities so far this year and how much further those declines are set to go for the rest of this year. SQM is completely independent with no ownership links to the property industry.

We also asked them to identify the areas which are turning in to property nightmares.

Remember these values and predictions are only for the 2011 calender year. There is every likelihood the downturn will extend atleast in to next year as well because the falls are picking up momentum (not slowing) in the second half of this calender year.

The facts are there are 70 per cent more properties on the market today than this time last year and auction clearance rates have plunged.

A sharemarket correction is seen as a pullback of 10 per cent from peak levels and anything over 20 per cent is seen as a crash. We’re heading for a correction across the board and a crash in selected regions.

How much pain is still to come will depend on a number of as yet unknown factors.

If the Reserve Bank raises official interest rates again, it will add to the pace of the decline. While most economists seem to change their mind daily on future rate rises depending on the latest morsel of economic data, we think the RBA is smart enough to know the weakness in housing and many other sectors of the economy.

The ongoing health of the Australian economy will play a big part. Our residential property prices are unlikely to drop the 30-40 per cent in value that occurred in large parts of the US and Europe because of the comparative strength of our economy.

If our economic growth reaches the 4 per cent level forecast in last month’s Federal Budget, and unemployment stays at the 4-5 per cent level, then most existing and prospective homeowners should be in reasonable shape.

But if official interest rates rise more than expected, or the economy cracks, all bets are off and the property slide could get ugly.

Even now, those first home buyers who took advantage of the boost to the First Homeowners Grant a couple of years ago need to make sure they’ve built up equity in their house and cut debt to ensure their loan isn’t “underwater”… worth more than the value of their property.

Sydney; population growth and a shortage of stock will provide a reasonably soft landing for Sydney property prices in general. But the prestige end of the market ($2 million plus) is being absolutely smashed and there will be no let up.

Melbourne; there are twice as many properties for sale as this time last year which is weighing down prices. Trendy inner ring suburbs have provided great growth over recent years but that bubble is bursting and is now the worst affected region in the downturn.

Brisbane; could turn in to a property nightmare with its declines being accentuated by the crash in nearby Gold and Sunshine Coasts where there is a massive oversupply of stock. In both regions there is 4-5 years worth of stock on the market as massive apartment blocks sold off the plan have failed to settle. Even just across the border at Tweed Heads is suffering. It will be years before there is any sort of recovery.

Perth; despite the commodities boom, high wages and a booming property market in recent years there is now a serious oversupply of stock. Down the coast around Mandurah is also a problem area.

Adelaide; is generally a pretty stable property market without the big peaks and troughs of the eastern capitals. As such, its downturn will be pretty muted by comparison except in the Port Adelaide (their AFL team isn’t going so well either) area which will suffer in the aftermath of recent strong development.

Darwin; has been going through a strong boom recently and has been set for the inevitable which is now occurring.

Canberra; property depends on the health of the public service. Under Labor is looks fine but if the Government changes, and the Coalition delivers its big public service cuts, then things can change rapidly.

Hobart; is another one of those solid property markets but Launceston is suffering from a sizeable property hangover.