Hessam Nadji, managing director of research services for the firm, said the current market was created in a 2004-06 environment where "if you could fog a mirror, you could get a loan." During that period, more than $2 trillion was taken out of homes and used to snap up big-ticket items such as plasma TVs and automobiles. Today, the home-as-ATM is out of cash, Nadji said.

With a housing inventory of at least 10.5 months, the problems will persist well into 2008. Commercial real estate will avoid much of the problems, but is not immune to subprime spillover. According to a Moody's study, the real problem could come from psychological risk associated with subprime loans, where $1.3 trillion of outstanding mortgage debt is considered to be at risk. Moody's predicts that one-third will default. That figure, if it hits, tallies $100 billion in actual losses. While that number seems staggering, Nadji said it only accounts for some 1% of the total US mortgage market.

Nadji also found a silver lining in the declining dollar. "Although the value of the dollar is declining, exports are rapidly on the rise (up 14.5% this year). We see this growth as a creator of jobs."