The non-profit Urban Land institute just published its Housing in America: The Next Decade report, and its predictions for the impact on U.S. residents of the current housing crisis, as well as its expectations for the industry, are not promising.

Reporting that virtually all funds supplied to the U.S. residential market nowadays are a direct result of action by the federal government, with Fannie Mae, Freddie Mac and FHA backing nine out of 10 mortgages, the ULI report makes a dire statement: “What was once considered the world’s most efficient housing finance system, attracting trilliions of dollars of investment from around the world, is now shunned by all, both here and abroad.”

Predictions include another 10 percent fall in national housing prices for the first half of 2010, with stabilization either in the second half of 2010 or early 2011. This is the best news possible, however, according to the Institute report, as this assumes that job losses end in the next few months and unemployment starts to decline in 2010. By the end of the year 40 percent of all U.S. homes with mortgages are expected to be underwater – that is, with balances left on their principals that are more than the current value of the homes. Investors will not return to the housing market until Fannie Mae and Freddie Mac are reformed or replaced, the researchers determined.

Urban Land Institute identified four demographics that would seriously affect the housing market in the next decade: older baby boomers (55-64) who would become seniors in record numbers; younger baby boomers (46-54), many of whom won’t be able to take new jobs because they can’t sell their current homes in the suburbs; Generation Y which will end up renting for longer than past generations have had to; and immigrants and their children, who may not be able to make their desired moves to the suburbs because it’s too costly to do so.

“The age of suburbanizatioin and growing homeownership is over,” wrote the Urban Land Institute. “The outer suburbs will have the least expensive housing but the cost in time and money of long commutes will eliminate any savings. Many who live there will do so not by choice but by necessity.”

Mortgage rates are likley to remain at their current 50-year lows throughout 2010, predicted the ULI researchers.

As did mortgage analyst Howard Glaser on Trulia’s Real Estate State of the Union call, ULI said that the federal government’s HAMP (Home Affordable Modification Program) is not working as planned. While responsible for stabilization of the home default rate, HAMP has produced few mortgages that are permanently modified. A total of 759,000 borrowers signed up with HAMP for trial modifications but only 5 percent of those eligible actually followed through with permanent modifications. While they didn’t report the default rate of these permanent modifications, ULI noted that prior modification programs had seen at least half of them default within a year.

The two indicators of mortgage default, said ULI, were unemployment and an underwater home status. While not all homeowners whose homes are underwater walk away from them, ULI pointed out that if only one in five do so, mortgage defaults in 2010 would be twice what they were in 2009.  An underwater status doesn’t just affect home ownership, either. It hampers an unemployed homeowner’s ability to sell her or his home to move for a new job. It can also trap retirees in the suburbs, where they’re unable to relocate to sunnier climates, areas more accessible to necessities via public transportation or to smaller (more affordable and easier-to-care for) homes.

The future of rental housing was reported as well. At the end of 2009 U.S. rental vacancy was at 8 percent, the highest rental rate in 29 years. Rents fell 3 percent. These two trends are expected to continue through 2010 and early 2011, especially with the opening of units whose construction began in 2007 and 2008. The rental industry will recover between 2010 and 2014, said ULI, partly because unemployment will be back down to 6 or 7 percent. The problem will be availability due to current drops in construction, which will drive rents up by as much as 6 percent. Growing urbanization, Generation Y’s deferral of home ownership and the decline in the rate of homeownership will favor the rental market in spite of rent increases, however.

ULI’s conclusion; Six million households at least will have lost their homes to foreclosure by the end of 2010, with more in 2011. This will represent 15 percent of all mortgages. Up to 15 million people, including children, will be adversely affected by this. Credit will be impaired, housing options for these families will be limited. Children will be disillusioned about the American Dream. As a result of fewer local homeowners state and local tax revenues will drop at the same time that local residents will be more dependent on public assistance.

“The impacts of this crisis will extend well into the future,” concluded the ULI.

Read the complete report here (PDF).