As far as I can tell, most analysts now concede that the bursting credit and real estate bubbles played a key role in bringing about the devastating downturn of the past two years.

Logically, that would suggest that a sustainable recovery is going to require some degree of stability -- no, normalcy -- in these two areas. Yet by most accounts, credit markets are on life support, dominated by the Federal Reserve and banks with broken business models that are somehow too big to fail.

Meanwhile, the residential property market is still being propped up by all sorts of subsidies -- for more on this, see "Policy and Housing: Someone’s Gotta Give!"-- and the supply-side of the equation remains an ongoing concern, if reports like the following from Reuters, "U.S. Mortgage Delinquencies Set Record," are anything to go by:

High U.S. unemployment keeps pushing up the rate of mortgage delinquencies, which could in turn drive personal bankruptcies and home foreclosures, monthly data from the Equifax Inc credit bureau showed on Monday.

Among U.S. homeowners with mortgages, a record 7.58 percent were at least 30 days late on payments in August, up from 7.32 percent in July, according to the data obtained exclusively by Reuters.

August marked the fourth consecutive monthly increase in delinquencies, and the report showed an accelerating pace. By comparison, 4.89 percent of mortgages were 30 days past due in August 2008, while in August 2007, the rate was 3.44 percent, Equifax data showed.

The rate of subprime mortgage delinquencies now tops 41 percent, up from about 39 percent in each of the prior five months.

The results, which correlate with consumer bankruptcy filings, suggest U.S. homeowners remain under financial stress despite signs of improving sentiment and fundamentals in the U.S. housing market.

In addition, the commercial property market is also looking dicey again, as Bloomberg reveals in "Moody’s Property Index Resumes ‘Steep’ Fall in July":

Commercial real estate prices in the U.S. resumed a “steep decline” in July after showing signs of leveling off in June, Moody’s Investors Service said, as credit restrictions curtail lending and push landlords toward default.

The Moody’s/REAL Commercial Property Price Indices fell 5.1 percent in July from the month before, Moody’s said today in a statement. The index is down almost 39 percent from its October 2007 peak. The decline in June was 1 percent.

Commercial property sales this year may fall to an 18-year low. This latest set of numbers suggests no letup in that trend, said Neal Elkin, president of Real Estate Analytics LLC, a New York firm that partners with Moody’s in producing the report.

“We are still vulnerable to moves on the downside,” Elkin said in a telephone interview. “As time passes, the distress and the stress among those who need to sell is growing.”

Elkin cited figures from Real Capital Analytics Inc., whose data are used in compiling the report, showing the portion of sales classified as “troubled” -- those properties in or close to default -- almost doubled to 23 percent in July from March.

That’s “something we’ve never seen,” Elkin said.

Sales this year through July totaled about one-third of the year-earlier number, Moody’s Managing Director Nick Levidy said in the statement. The market averaged about 375 sales a month this year compared with almost 1,100 a month last year, he said.

Office sale prices fell 23 percent from a year ago in New York, 27 percent in San Francisco and 22 percent in Washington, according to the report.

South Affected

Prices of apartment buildings in the U.S. South have seen some of the steepest value declines, according to the report. Apartment prices in the region dropped 44 percent in the 12 months through June, almost twice the nationwide decline of 24 percent, and are now about half what they were two years ago.

Florida apartment values tumbled 40 percent in a year, the report said.

“That’s eye-popping,” Elkin said. The decline is being caused in part by “a ripple effect” from the overbuilding of condominiums in those markets, many of which are now competing as rentals, he said.

In sum, it seems like those who see signs of light at the end of the tunnel need to look a bit more carefully at what's really there.