The nation has not faced housing problems of this magnitude since the Great Depression. Heavy job losses and lingering high unemployment rates have increased housing insecurity for millions of families. The share of U.S. households with severe housing cost burdens reached a record high in 2008 and may have climbed again in 2009. Although households have switched from net spenders to savers, their balance sheets have still not recovered for the boom years.

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It will likely take years for the fallout from the Great Recession to abate. The 2000s ended on a sour note, with real household incomes lower than where they had started the decade and the shares of housing cost-burdened households at record highs. With federal budget deficits looming, the resources necessary to make a noticeable dent in the nation’s widespread housing affordability problems are unlikely to appear anytime soon. The share of cost-burdened homeowners may, however, ease as some stressed households default on their loans and become renters, or as others qualify for federal loan modification programs. Tighter underwriting standards and lower home prices will also keep more homebuyers from taking on excessive cost burdens right from the start.

And the biggest threat to the nascent housing recovery, or at least the bottoming-out and stabilization? Joblessness. The 15 million unemployed Americans are not purchasing homes — and many are desperately trying to sell.

After following a classic pattern of improving exactly two quarters before growth in real gross domestic product (GDP) turns up — and within two to three quarters of renewed employment growth — new home sales sputtered in the final quarter of 2009 and the first quarter of 2010.

Despite strong new home sales gains in March and April 2010, the durability of the housing recovery is still at risk. In addition to the expiration of the homebuyer tax credit program, which may have temporarily jacked up home sales, the market faces threats from the severe overhang of vacant units, still high unemployment, and record numbers of owners with homes worth less than the amount owed on their mortgages.

Demand has been so weak that vacancies hit record levels despite draconian production cuts. The number of vacancies exploded from 2006 through 2008 before growth slowed in 2009. For-sale vacancies finally eased last year, perhaps aided by the first-time homebuyer tax credit. But increases in for-rent vacancies more than offset the reduction, suggesting that some owners may have shifted their empty for-sale units to the rental market. Worse, the surge in foreclosures pushed the number of excess vacant homes in the “held off market” category some 745,000 units above normal levels, rivaling the total number of excess vacant units that are for sale and for rent.

There continue to be real problems caused by the number of underwater homeowners — people who owe more on their mortgage than their house is worth, meaning that they would still owe the bank if they sold their home. Some of those most underwater choose to walk away — defaulting or “strategically defaulting,” leaving their home in the bank’s hands and taking the hit to their credit scores. “Cramdown” or principal reduction programs would have prevented the rising tide of strategic default, which remains a threat to banks’ bottom lines and housing prices.

That said, the report notes, there is some hope that the significant drop in home prices will once again make homes realistically affordable for first-time buyers — rather than leveraging themselves, they can, if employed, save a deposit and obtain a good mortgage.

According to the broad S&P/Case-Shiller index, prices for low-end homes in most metropolitan areas registered the largest drops. On average, the declines at the low end of the market were more than 50 percent greater than those at the high end. This disproportionate loss of housing wealth has added to the pressures on low-income homeowners faced with job losses and heavy debt loads.

When nominal prices are rising, owners who get into trouble making payments or need to move can simply sell their homes for a nominal gain and pay off their mortgages. But when nominal prices fall, owners whose homes are worth less than their mortgages cannot sell at a gain. This impedes repeat sales and increases the likelihood of defaults. According to First American CoreLogic, roughly one-quarter of American homeowners with mortgages were underwater in the first quarter of 2010. Some 40 percent of these 11.2 million distressed owners are located in California and Florida. Nevada has the highest incidence of the problem, affecting 70 percent of homeowners with mortgages.

At the same time, though, steep price declines also bring critical improvements in first-time homebuyer affordability that will help to fuel recovery. Nationwide, the median sales price dropped from 4.7 times the median household income in 2005 to 3.4 times in 2009. When combined with low interest rates, this puts mortgage payments on the median priced home closer to median gross rents than at anytime since 1980. Among the 92 metropolitan areas consistently covered by NAR since 1989, price-to-income ratios in 21 are now below their long-run averages — some significantly so.

Still, there is little hope for a strong housing rebound — not with the sky-high unemployment rate and generally sluggish economy.

In the good column: The number of homes receiving default notices fell 12 percent and the number of foreclosure auctions fell 13 percent. In the bad: Bank repossessions hit an all-time high, with banks taking over 92,432 homes last month alone, an increase of 45 percent year-on-year.

“There were two important milestones in the April numbers that show foreclosure activity has begun to plateau — but at a very high level that will not drop off in the near future,” RealtyTrac’s chief executive officer, James Saccacio, said in a release. “April was the first month in the history of our report with an annual decrease in U.S. foreclosure activity. Secondly, bank repossessions, or REOs, hit a record monthly high for the report even while default notices dropped substantially on a monthly and annual basis. We expect a similar pattern to continue for most of this year, with the overall numbers staying at a high level and ripples of activity hitting the various stages of the foreclosure process as lenders systematically work through the backlog of distressed properties.”

The “sand states” — Nevada, Arizona, Florida and California — continued to bear the worst of the foreclosure crisis. And the report noted that strategic defaults are rising, and could bump the foreclosure number up again in the coming months.

If this is happening, it is a worrisome trend for big financial institutions, like Bank of America. Those banks often have hundreds of thousands, if not millions, of mortgage and home-equity loan customers — and therefore a lot of losses to stomach if homeowners decide to stop sending in checks and instead to grant the bank a house to try to sell on a very sluggish market.

Harrison explains, though, why strategic default might be a good idea for a homeowner:

Why might someone do this? Basically, someone strategically defaults because one finds oneself in a situation in which repayment no longer makes financial sense. For example, you buy a house for $400,000, $40,000 in cash and $360,000 as a mortgage. The value drops to $300,000, so you are now 20% underwater and rentals are half the price of your mortgage payment.  Meanwhile your repayments are 60% of income and you and your spouse have two children to take care of.

A person in this scenario who could continue paying the mortgage might opt to default, knowing that the bank might even delay in foreclosing on them, giving them rent free accommodation on top of defaulting. Remember banks are playing the pretend and extend game in order to avoid credit writedowns. The growing divide between delinquencies and foreclosures tells you that this is what is happening.

Harrison argues that the data imply that homeowners are taking money that would have gone to their mortgages or other loans — sometimes eating up as much as 60 or 70 or 80 percent of take-home income — and using it for personal expenditures. (I mention the mall in the headline, but I’ll note here that distressed homeowners are generally pretty hard up. Food and gas is more likely.) And he finds a number of anecdotal accounts of just this happening. HousingWire offers a similar argument as well.

Ultimately, if this phenomenon is as widespread as one might imagine — given that as many as 3 million households will receive a foreclosure notice this year — I’d expect to see that reflected in decreased expenditure on housing and increased expenditure on goods, on aggregate. I hoped to find information on how Americans spend their post-tax income, proportionally, but I could not find more recent data than from 2007. (If anyone has it, put it in comments!)

But the Bureau of Economic Analysis does provide often-updated, detailed data on spending on housing, goods, services and other necessities. It turns out that as of last quarter Americans were still spending a bit more on housing last quarter than in the one before it. But given the dire state of the housing market in the first quarter of 2010 and increasing numbers of defaults, I would not be surprised to see that red line bend down soon.

Housing finance officials in those states will be able to use their block grants, upon receiving approval from federal officials, to help unemployed homeowners or provide assistance with new home purchases or mortgage modifications.

Speaking of mortgage modifications, the new program being launched today has only 2 percent of the funding given to Obama’s $75 billion mortgage modification program in which banks were supposedly paid to help the very same homeowners stay in their homes. According to reports out this week, that program has only given 20 percent of the nation’s reported 4 million struggling homeowners any assistance, which is probably why this new program is needed in the first place.

The fact that Obama thinks he can help a large number of homeowners in the five hardest-hit states with the very mortgage issues a program that cost 50 times as much was designed to resolve means either that the first program didn’t need that much money or that the banks who profited from it didn’t use their profits to help any American not employed by a bank.

Countries ranked less likely to default include corruptocracy Kazakhstan, less-than-reform-minded Indonesia, the debt-ridden Philippines and violence-ridden Colombia. By comparison, U.S. Treasuries prices are up today despite a new issuance this week.

On Oct. 30, 1938, the weekly radio program Mercury Theatre aired “The War of the Worlds.” As adapted from H.G. Welles’ novel and directed by Orson Welles, the effect was stunning. The broadcast’s first half was presented as a series of dramatic news bulletins about a Martian invasion. Many listeners who had missed, or ignored, the opening credits assumed that the invasion was real. Local police were swamped by phone calls from panicky listeners. Some people fled their homes.

The financial equivalent of this broadcast today would be: “We interrupt regular programming to announce that the United States of America has defaulted on its debt!” But, unfortunately, this would be no fantasy news event.

Default means that the borrower has failed to honor his contractual obligations by not paying interest and principal owed to the lender. The most immediate financial effect of default is the loss suffered by the lender.

Yet lenders to the U.S. government have suffered significant financial losses. Not from nonpayment of interest or principal, but because the currency in which the debt is serviced and paid back — the dollar — has lost substantial value relative to other currencies.

Consider a Japanese investor who bought 30-year U.S. Treasury bonds in 1985, when the exchange rate was $1 = 250 yen. Based on the current exchange rate of $1 = 105 yen, the value of the investment has dropped 58 percent. European investors who bought U.S. government bonds in recent years suffered similar financial losses. If they bought U.S. bonds when the exchange rate was 1 euro = $ 0.85, their investment would have lost 46 percent of its value with today’s exchange rate of 1 euro = $1.56.

Such losses to foreign buyers because of the dollar’s declining value are not that unusual. What’s scary for these investors is that these kinds of losses are tantamount to default. Is Washington effectively defaulting on its debt obligations by refusing to defend the dollar? Even today, when the dollar fell around the globe as news of the proposed $700-billion Wall Street bailout spread through the world markets, Washington did nothing.

The U.S. national debt has been rising at a rapid clip. In March, it stood at $9.4 trillion, up 50 percent since 2000. In 2007, it grew by $500 billion, from $8.7 to $9.2 trillion. In 2005, the U.S. national debt amounted to 67 percent of that year’s gross domestic product; in 1988, it had been just 51 percent of GDP. The Office of Management and Budget projects the debt to rise to $12.3 trillion in 2013.

Who owns U.S. debt? Some $2.4 trillion of the $4.7 trillion held privately is owned by foreign investors. Japan holds about $600 billion, or 24 percent; while China’s share is $500 billion, or about 20 percent. Britain, Brazil and the oil-exporting countries own about 6 percent.

Middle East and Russian holdings of U.S. debt may, in fact, be higher. Because these nations might seek to avoid disclosure, Belgium, Caribbean banking centers and Luxembourg — which represent 8 percent — may actually be vehicles for their investments.

What’s troubling is that the $9.4 trillion figure does not take into account the U.S. government’s unfunded liabilities. For example, it does not factor in the huge costs of buttressing Medicare and Social Security as baby boomers retire.

In June, Peter Orszag, director of the Congressional Budget Office, testified before the Senate Finance Committee that, “The U.S. economy faces the long-term threat of ‘collapse’ unless major reforms on health-care spending are instituted in the coming years.” The federal budget, he added, is on an “unsustainable path” because health-care costs are growing faster than the overall economy.

A month later, Richard W. Fisher, head of the Dallas Federal Reserve Bank, said, “The unfunded liabilities from Medicare and Social Security…comes to $99.2 trillion over the infinite horizon.” That works out to $1.3 million per family of four — more than 25 times average household income.

While the national debt is soaring, its maturity is shortening. In December 2000, the average maturity of U.S. government debt held by private investors was 70 months. As of March, it was 53 months. Even more troubling is that, of this debt, 71 percent is due in less than 5 years, 39 percent in less than 1 year.

In part, the shortening maturity of U.S. debt is because the Treasury stopped issuing 30-year bonds during the Clinton administration. This has since been reversed by the Bush administration. But the ostensible rationale was that projected U.S. budget surpluses would allow some government debt to be retired. In reality, low, short-term interest rates during the 1990s reduced the borrowing costs of issuing short-term bonds — which had the effect of boosting annual government surpluses. Today, interest rates are higher, and Washington must now “roll over” significant amounts of debt at those rates in the coming years.

The seriousness of the country’s rising national debt is compounded by the projected 2008 budget deficit of $380 billion — more than 2 percent of GDP; and the current account deficit that is is expected to exceed $700 billion this year — more than 4 percent of GDP.

Combine that with an extremely low U.S. savings rate — which is probably even lower today. Until recently, U.S. consumers counted asset appreciation — primarily their homes and stocks– as savings. The problem was that they borrowed against these assets, now depreciating, to fund consumption.

One mainstay of the U.S. economy had been its vaunted financial system. In 2001, Lawrence Summers, former deputy Treasury secretary in the Clinton administration, extolled the merits of the system at the London Stock Exchange. “The United States is the only country in which you can raise your first $100 million before you buy your first suit.”

Summers dismissed critics who felt that the U.S. financial system’s sophistication in creating new trading instruments was synonymous with financial instability: “[That belief] is observed in inverse proportion to knowledge of these matters.”

In a 1998 speech during the Asian financial crisis, Summers also preached the merits of American-style “transparency and disclosure.” But it is the U.S. that now needs “transparency and disclosure.”

The U.S. financial system has been badly affected by losses on subprime mortgages and the credit crunch. Losses are already in excess of $300 billion. The banking system needs additional capital, despite having raised more than $200 billion so far. The U.S. government has engineered the sale of Bear Stearns to JPMorgan Chase, nationalized Fannie Mae and Freddie Mac, bailed out the insurance giant American International Group and announced a plan to buy bad loans tied to the housing market made by banks. The Federal Reserve has provided almost $500 billion to support the financial system, and the cost of the plan to buy back banks’ bad loans is pegged at $700 billion.

The result of all this is that glabal confidence in U.S. financial markets has greatly suffered. The largely unregulated growth of securitisation and off-balance-sheet vehicles -– the “shadow banking” system -– now threatens the financial system and perplexes many foreign observers. Byzantine U.S. accounting practices — off-balance sheet debt, mark-to-market requirements and derivative accounting — and the failures of the rating agencies, basically a U.S. phenomenon, have also undercut investor confidence here and abroad.

Even the veracity of the economic data released by the government has been questioned. Bill Gross of PIMCO, one of the world’s largest bond investors, and other commentators contend that Washington’s official measure of “inflation” significantly understates actual levels because of statistical adjustments made over the past 25 years. Mohamed El-Erian, co-chief executive of PIMCO, summed it up on June 25: “What has suffered most is the credibility of the most sophisticated financial systems in the world.”

High levels of debt are sustainable, provided the borrower can service and finance it. Washington has had no trouble attracting investors, domestic and foreign, to date.

In recent years, the United States has absorbed roughly 85 percent of total global capital flows — about $500 billion each year — from Asia, Europe, Russia and the Middle East. And risk-adverse foreign investors prefer high-quality debt –- U.S. Treasuries, AAA rated bonds, including asset-backed securities.

Warren Buffett, in his 2006 annual letter to shareholders, noted that Washington can fund its budget and trade deficits because it is still a wealthy country with a relatively strong economy. The problem is that a significant portion of the money flowing in from overseas is not used to finance productive investments. Rather, it funds government spending.

The mass hysteria and panic that followed the broadcast of Orson Welles’ “The War of the Worlds” played on fears about an attack by Germans. It is interesting to speculate whether a broadcast on a U.S. default on its sovereign debt would play on the secret fears of global markets and trigger a similar panic. “We interrupt regular programming to announce that the United States has defaulted on its debt!”

Satyajit Das is a risk consultant and author of “Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives.”

At the time of publication the author or his firm did not own any direct investments in securities mentioned in this article though he may be an owner indirectly as an investor in a fund.