Economy.com's chief soothsayer, Mark Zandi, has often been spot-on about near-term economic developments. His outlook on the credit situation isn't pretty.

"There is a substantial risk that the mortgage market will devolve into a self-reinforcing negative cycle," Zandi said in a release this morning. "Mounting credit problems could beget more restrictive underwriting standards, which would weigh heavily on the fragile housing market as potential borrowers become unable to obtain credit, and existing borrowers facing large payment resets are unable to refinance. Foreclosures would mount, leading to weaker house prices, falling homeowners' equity and even more substantial credit problems. The cycle repeats with more intensity and the mortgage market corrections unravel into a crash."

Moreover, he said a glut of unsold houses will continue to weigh on the general real estate market, putting further downward pressures on pricing. As if to provide an exclamation point, the US Commerce Department reported today that sales of new, single-family homes nationwide fell a whopping 6.6. percent in June, from the previous month and 22.3 percent from June 2006. And in the Northeast US, the decline in new home sales from May to June was 27 percent.