CURRENT CONDITIONS:

Delinquencies - Approximately 14% of homeowners are delinquent on their mortgages or in foreclosure. This is the highest level ever recorded by the Mortgage Bankers Association.

Under Water - Almost a quarter of homeowners own more on their mortgage than their houses are worth.

Foreclosures - According to Mortgage Monitor, “Foreclosure sales jumped in October, with the rate at 5.6 percent of foreclosures in inventory… Foreclosure inventories continued to climb to record levels. October’s foreclosure rate stood at 3.14 percent, a month-over-month increase of 0.7 percent and a year-0ver-year increase of 85.1 percent.

Deteriorating Mortgages - The November Mortgage Monitor report, released by Lender Processing Services, Inc (NYSE: LPS), reveals a nationwide loan deterioration ratio higher than 3:1 – indicating that for every one loan improved, three more loans are deteriorating.

LOOKING FORWARD:

Shadow Inventory - These are the homes that are in foreclosure and have not yet reached the For Sale market. Mortgage Monitor reports, “The number on the market continues to stall as foreclosure timelines extend. Nearly 30 percent of properties that have been in foreclosures for 12 months have not yet been put on the market for sales – twice the level of the prior year.”

Adjustable Rate Mortgages - 2010 will see another wave of mortgage distress resulting from interest resets on “Alt-A” and “Option-ARM” mortgages. This will place upward pressure on the supply of homes on the market, and possibly lead to renewed problems in the financial sector and debt markets.

Interest Rates - As the Fed withdraws its intervention in the mortgagebacked and government bond markets, housing affordability and prices could suffer. Goldman Sachs recently forecasted inflation and the Fed zero interest rate policy (ZIRP) hover close to zero throughout 2011.

Jobs Market – Here is a real wild card. In order for housing to regain sustainable moment the jobs market must strengthen. Goldman Sachs recently forecasted unemployment to peak in mid-2011 at about 10.75%.

Bottoming Out - Mark Zandi, of Moody’s Economy.com, says, “The housing crash is not over.” Zandi predicts home prices will not bottom until late 2010, after falling 38% from their peak.