by Jared MacLane, Learning Markets Contributor

The housing crisis is far from over. In fact the amount of foreclosures expected to rise in the next 12 months from risky Option-ARMS could dwarf the sub-prime market meltdown of 2007-2008.

Review of Today’s Market Action
Essential Reading for Traders Here is a selection of articles every successful investor should read and understand: • What you should know before    investing • Understanding the Dow Jones    Industrial Average • Causes of the Credit Crisis • Understanding LIBOR • Relationship of trends in    stocks, bonds and rates • What Drives Mortgage Rates? • Bond Basics • Understanding a Recession • Understanding the LIBOR/OIS    Spread • Smart Dividend Investing

Homeowners with this type of mortgage are expected to walk away from their homes in droves. Those with perfect credit, marginal credit scores, even those who have never been late on a mortgage payment, will effectively owe more on their home than it’s worth. The issue of whether or not to turn the keys in now becomes a moral and economic decision. Is it worth paying 60% more per month on your mortgage of say $600,000, when your home is only worth $450,000? Are you being smart by being responsible?

The excess supply of houses on the market has reached 7 million units!! Compare that to 1.27 million in 2005. To add, there are 56 million units (mortgages) that make up the “housing market”, on top of the 7 million referred to as shadow-inventory, 6.94 million units are awaiting their foreclosure stamp. The delinquency pipeline as it is called, adds 300,000 units every month.

Learn more about the housing market and how you can invest when things are going up or down:

- How to profit from home prices
- Real estate investing the EZ way
- Dividends vs. "flipping houses"
- Diversifying with real estate

Consequences of over supply always hurt prices. Thank the government for handling over 80% of all new mortgages issued recently, and the Fed for their extension of the MBS (mortgage backed securities) purchase plan. Yet, the strength of these two behemoths couldn’t keep sales of new homes up last month. More dreams will fade, loan portfolios will be tarnished, causing further strain on banks, and on and on.

Two things will need to be completely under control before we are out of the woods. Unemployment stops ascending, and the housing market needs to bottom. Without those two factors, we are without our spending machine- the fabled consumer-feeling stable, prosperous and leveraged to the hilt.

You can see more of Jared's commentary at his blog; Marginal Trends.