Ivy Zelman's view of the U.S. housing market is gloomy, but it's probably the most realistic.

A veteran Wall Street analyst, Zelman, chief executive of the research firm Zelman & Associates, says it's unlikely the U.S. housing market will recover before 2009, adding there's a '50 to 60 percent chance of a recession,' as the housing slump curbs consumer spending.

Zelman paints a much darker picture than Federal Reserve Chairman Ben Bernanke, who said last week that housing will be a 'significant drag' on the economy into next year.

When you consider the huge home inventories and tight-as-a-drum mortgage restrictions, it's easy to conclude that the housing slump could extend well past 2008.

Unless financing loosens up and buyers return, her prophecy will become a reality.

'I've never seen the market as bad as this,' Zelman says. 'And it could get worse. The home-price decline could range from 16 percent to 22 percent.'

Monitoring inventory, builder incentives and demand, Zelman also is watching adjustable-rate mortgage resets.

Homeowners with these loans automatically will face higher monthly payments that they may not be able to afford, another trigger for foreclosures or sales. About $500 billion of these loans will readjust through 2008, Zelman says.

'Worst Inventories'

Foreclosures have declined somewhat from August to September, but they still doubled from a year ago, according to RealtyTrac, which monitors the housing market.

More homes are coming on the market, and Zelman says that will only add to the misery.

'These are the worst inventories we've seen as a nation,' she says. Zelman originally presented her report Oct. 10 to the Home Improvement Research Institute, a Tampa-based trade group.

Zelman's words carry weight because she was one of the few major Wall Street analysts to warn of a housing decline months before it began late last year.

She was alarmed that home prices far outpaced personal-income increases during the boom, which is how the economic disconnect began. A bubble created artificially high demand that had to deflate sometime. Now economists and analysts are trying to assess the collateral damage of the bust and subprime mortgage meltdown.

Meanwhile, builders are stuck with thousands of new homes they can't sell and potential buyers are canceling in droves or are unable to get a mortgage. Housing starts fell to a 14-year low in September.

'Builders are desperate now and blowing through inventory,' Zelman says of home builders who are doing anything they can to sell homes. 'Their revenues are shrinking so fast, they can't keep up.'

Prices May Fall Until 2011

The mass psychology that amplifies and spreads the angst of home sellers will put a brake on overall consumer spending, Zelman predicts.

'Some 74 percent of consumer expenditures are correlated to housing. I don't think the consumer will hold up. They will cut back on things like buying cars and vacations.'

Zelman forecasts that sales will drop for the next two years, but she isn't as optimistic on home prices, which she says may continue falling until 2010 or 2011.

'We'd be better off if prices corrected all at once. It will get worse before it gets better.'

Places where sales were strongest and speculators were most active before the bust will be bedeviled by high home inventories for more than a year.

Cities that scored lowest with an 'F minus' grade, described as 'very competitive with a negative bias' in her firm's September home-building survey, included San Diego, Phoenix, Inland Empire, Calif., and Fort Myers.

Those rated 'moderate and stable' - a 'C' - were Philadelphia; Raleigh, N.C.; and San Antonio, Texas.

Areas connected to auto-related job cuts in Michigan and Ohio will continue to feel pain.

Not every market will get pummeled, though. New York seems to be holding up for certain kinds of housing. Prices of co-op apartments with four bedrooms or more, for example, rose 19 percent in the third quarter from a year earlier.

Major markets with the lowest level of housing distress include Bethesda, Md.; Boston-Cambridge, Mass.; and Manchester and Rockingham, N.H. That's according to HomeSmartReports, a service that tracks six variables of home-market risk.

'Boston is pretty moderate in terms of risk,' says Mike Ela, president of the service. 'Lenders have pulled back aggressively.'

Don't expect to land properties at bargain-basement prices.

One assumption is that the best values will be in areas glutted with properties. Yet many sellers will be holding out for prices they saw at the peak of the boom. Motivated property owners, though, may be willing to deal.

Keep in mind that job growth and consumer spending bear close scrutiny. If Zelman is right about a recession coming, then prices may fall more, plunging the housing market into an even sorrier state.