If you've become comfortable with the current state of the housing market ... don't. Economists at Goldman Sachs (NYSE: GS) and Bank of America's Merrill Lynch (NYSE: BAC) say there's still plenty of risk in the housing market.

Alec Phillips, the head of Goldman's Washington office, said, "The risk of renewed home price declines remains significant." His "working assumption" is a drop of between 5% and 10% by the middle of next year.

The market seems to want to go up each day as it has relentlessly almost every trading session since April. But yesterday, it had a tiny setback after the FOMC announcement. Today the culprit was housing. The National Association of Realtors said existing home sales declined 2.7% in August. Every economist worth his salt said the number would rise.

Good news on the unemployment front did give the market an early boost this morning. Within an hour, though, bad news on the housing sales front wiped out the gains and moved the major indices into negative territory, where they have remained.

Here were today's unofficial closing numbers:

Dow 9,706.99 -41.56 (-0.43%)
S&P 500 1,050.78 -10.09 (-0.95%)
Nasdaq 2,107.61 -23.81 (-1.12%)

July was a good month for new home sales, which saw an increase of 9.6 percent during the month.

Before we look at the good news, let's cover the bad news first. Even with the jump in sales in July, new home sales are still well below their peak four years ago. In fact, new home sales are 69 percent below their peaks when the housing market was at its best.

We have all been waiting to hear news that the housing market has rebounded, and we got a little indication that things were improving today as homebuilder sentiment rose this month to its highest level since September.

According to the National Association of Home Builders its index of builder confidence jumped two points in July to 17. This is the first time the index has hit 17 since last September.

Home foreclosure filings in the United States hit a record 1.9 million in the first half of 2009, according to RealtyTrac –-- on more than 1.5 million properties. Again, unemployment is one of the primary culprits, as a lack of income makes it pretty tough to bring a loan at risk of default up to date. The number of filings is up 9% from the second half of 2008 and up almost 15% from the same period last year.

Last month, foreclosure filings were up 5% relative to May and up 33% from June 2008. The month's action was the third highest on record, and it was the fourth month in a row in which there were filings on more than 300,000 properties.

Late Tuesday, Freddie Mac (NYSE: FRE) reported that its quarterly net loss checked in at $9.9 billion thanks to rising delinquencies. The company also blamed the results on continued impairments on its holdings of mortgage-backed securities. On a per share basis, FRE's quarterly loss increased to $3.14 a share, compared to $151 million a year ago, or 66 cents a share. The mortgage lender's total revenue dropped to $771 million from $1.41 billion a year ago.

FRE put aside $8.8 billion in provisions in order to cover credit losses for the first quarter, up from $7 billion in the final quarter of 2008. FRE attributed this to the increase in the number and rate of delinquent mortgages, coupled with increasing foreclosure-related losses.

Bright and early this morning, Toll Brothers (NYSE: TOL) reported that its first-quarter loss narrowed thanks to fewer write-downs. The luxury homes giant lost 55 cents per share compared to 61 cents per share a year ago. The quarterly loss misses the Thomson Reuters estimate by 3 pennies. TOL's latest results included write-downs (pre-tax don't you know?) of $156.6 million, compared to $245.5 million last year. Taking the write-downs out of the equation, TOL's quarterly profit hit six cents per share. TOL's quarterly revenue dropped 51% to $409.3 million.

Looking ahead, TOL stated that it won't provide fiscal 2009 guidance thanks to the current market climate. The homebuilder did state expectations that it will deliver somewhere between 2,000 and 3,000 homes in the current year at an average price between $600,000 and $625,000.

Even while dancing on the edge of the Great Abyss one should keep one's eye on the numbers. In this case, the key indicators that presage an economy at risk of totally imploding. Sure, the auto sales numbers were no worse than grim expectations and the ISM manufacturing number was actually a positive. But, oh, we have lots of nasty numbers to go around. Start with the RevPar number. That's short for revenue per available room at hotels and is a solid indicator of the health of the travel industry, as well as the state of business travel spending. The number? Down a stunning 15.3% in the month of January, year-over-year.

Homeowners may have a better chance of saving their homes using the bankruptcy code thanks to Citigroup's (NYSE: C) turnaround on a process called cram-down. If cram-down becomes an option for bankruptcy judges, they can alter the terms of mortgages (often reducing the amount of principal due) to make it affordable for someone to stay in their home. Other changes could include reducing a loan's interest rate or extending its length.

Democrats have called for adding cram-downs to the bankruptcy code since 2007, but the banking industry has fought it. Now with banks taking so much bailout money, it's time to pay the piper. Senators Dick Durbin (D-Ill), Chris Dodd (D-Conn) and Charles Schumer (D-NY) have led the fight for change in the bankruptcy code. Since Citigroup agreed to the bankruptcy law change with certain conditions other banks have called Schumer promising to jump on board.

Now that there appears to be an agreement with the banks, the Democrats plan to add a cram-down provision to the economic stimulus plan moving through Congress. There will be some limits though. If the law passes, only mortgages entered into prior to the date of enactment of the bill will be eligible for cram-down. Homeowners also will need the show that they tried to negotiate with their mortgage holder. They must contact their banker at least 10 days before filing for bankruptcy to give the bank an opportunity to negotiate.

Helping people with troubled mortgages is supposed to keep them in their homes and , over time, stabilized the housing market. The FDIC and Congress have urged that more money from the TARP be used for the purpose of propping up home loans instead of improving bank balance sheets.

The conventional wisdom about helping homeowners make payments may be wrong. According to The Wall Street Journal, a report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision shows that "More than half of loans modified in the first quarter had slipped back into delinquency after six months, and were 30 or more days past due by the end of September."

Not very promising progress. The theories from federal officials about why this is happening were not very helpful.

A look at the average troubled mortgage-holder may be more useful. This is a man who may lose his job as unemployment rises from 7% to, perhaps, 9%. He has little prospect for his income to rise. He may have large amounts of credit card debt but no access to additional credit. He may have an expensive home equity loan. And, perhaps worst of all, the value of his home may be way below the value of his mortgage. He may be facing the fact that he will never get a dime of equity out of his house.

The idea that helping troubled mortgage-holders may break the fall of housing prices could be deeply flawed. That would mean that pouring tens of billions of dollars into the home mortgage market may have very little effect. Better to make people fell that their jobs are secure and that they have access to credit at reasonable costs. Maybe then homeowners will fell that paying their mortgages makes some sense.

Douglas A. McIntyre is an editor at 247wallst.com.

In putting together my Top 10 Stocks for 2009 last weekend, I focused on infrastructure, oil and agriculture. The 10 on the list are weighted to these sectors, as I believe they will deliver the biggest gains for the upcoming year.

I could have very easily added the homebuilding sector to the above list, but with only room for 10 stocks I had to draw the line somewhere. That said, I just could not resist the bargains in the builders, and I managed to include Pulte Homes (NYSE: PHM) to the list.

I had a hard time selecting just one builder, but a list of 10 requires one to make tough choices. I choose PHM for the relative safety in its valuation. At the time, the stock traded for about 60% of book value.

Other homebuilders traded for much lower valuations, and a close second to make my Top 10 list, is Lennar Corp. (NYSE: LEN). Trading at 20% of book value, I thought LEN was worthy of the speculation.

The main question that everyone keeps asking regarding the housing market is: when are people going to start to buy again? Last week we saw a little encouragement in this area, as mortgage applications rose a bit higher, possibly in reaction to lower interest rates.

Almost everyone agrees that the troubled housing market is a key ingredient to the current economic troubles that the American economy is dealing with, but today we got a bit of good news, as mortgage applications reportedly rose by 11.9%.

Last week's move is a nice sign, but we also have to remember that just the week before, we were looking at applications running at their lowest level since all the way back in December 2000, so we can't allow ourselves to get too excited over today's news. We still have a long way to go before the country is able to crawl its way out of the current housing melt down.

Citigroup (NYSE: C) is reusing an old advertising slogan: Citi never sleeps. I guess the idea is that since it operates in 100 countries there is always a Citi employee who's on the job. The latest result of all that 24x7 brain power is a plan to let some its customers sleep in their own houses instead of kicking them to the curb. Which people? The people who borrowed money from Citi to buy houses and who are struggling to pay back the loans.

I found out about this proposal yesterday, although I did not know the details, when a radio network asked me to comment on it for broadcast today. But the news was embargoed until midnight so I can now blog about it. Citi says it will put a moratorium on foreclosures for borrowers who pass three tests: they have enough income to make "affordable" mortgage payments; they are working "in good faith" to renegotiate the loan; and the mortgage pertains to their principal residence.

Citi plans to focus on $20 billion in mortgages in states with the biggest foreclosure concentration -- Arizona, California, Florida, Michigan, Ohio and Indiana. Citi will assign 600 salespeople to adjust mortgage rates, reduce principal, or increase the term of the loan. In the next six months, Citi will contact 500,000 people, a third of its total mortgage population, who are current on their payments but who might need help keeping current.

Yesterday's election marks the end of a string of economy-destroying ideas that stretch back to 1980. America rejected the idea that it's right to run a government of the rich for the rich. It figured out that when you cut taxes for the top 1%, run record deficits, double the national debt, and eliminate regulation, you don't get trickle down, you get meltdown. Barack Obama's election means that these ideas are history.

What will replace them? Obama has already discussed economic stimulus, middle class tax cuts, mortgage modification, a moratorium on foreclosures, infrastructure spending, wider health care coverage, and investment in alternative energy.

But the 43rd president left Obama with a challenge -- to figure out the underlying problems with the current financial system and rebuild it in a way that will work in the short and longer term. Obama must come up with new ideas on which to rebuild the crumbling ruins he's inheriting.

To do that, he will create a team of experts from both parties. That team should analyze the sources of the problems that beset the economy and financial system. And it must agree on principles which can be used to craft legislation that will rebuild the financial system. As I've posted, I believe what they'll find is the need to create a system that ends securitization. limits leverage, delivers transparency, ties compensation not to deal size but to long-term profitability, and builds firewalls between markets around the world.

Minyanville contributor Andrew Jeffery dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

Put on those rose-colored glasses, it's time again for the Existing Home Sales data:

• September sales came in 5.5% higher than the previous month, at 5.18 million (annualized) compared to estimates of 4.95 million.
• Sales were 1.4% higher than last year -- the first year-over-year increase in three years.
• Inventory shrank to 9.9 months worth, from 10.6 months.
• Median home price dropped to $191,400, the lowest since April 2004.
• Distressed sales made up 35-40% of sales, with 80% of those going to owner-occupiers (higher than the usual 75%).

Per normal, the National Association of Realtors chief economist Lawrence Yun is as optimistic as ever. He gets paid to obfuscate the truth.

Per normal, the National Association of Homebuilders chief economist David Seiders is as pessimistic as ever. The worse it is, the better chance his group gets on the government dole.

It's messy out there in housing land, but that's not exactly news. Keep in mind that the year-over-year numbers line up against this time last year, when credit markets first seized up and home buying all but evaporated for a couple months. Easy comparisons make for premature bottom call.