This scenario is something everyone knows. Even if you do not own a home, the fear of bank failures has certainly come to your attention. The past is done and nothing can be done about it. Ah, but what about the future. Is the bottom of the market near?

After nearly three years of dropping prices and bad news, one would think the real estate market has to be getting close the bottom. After all, buyers are going to jump in soon given the good deals out there. Ah, but what if they cannot?

If one focuses just on the real estate market, a turn around seem inevitable by early 2009. Of course, the real estate market does not just sit in isolation. It is part of the overall economy, which means additional factors have to be taken into account.

There is one factor that is flashing a major red light for the real estate market. It is the banking industry. The problems surrounding mortgage lenders have been very bad, but have really only just begun.

The entire situation would be humorous if it was not causing so much pain. The banks are in trouble because they gave out bad loans. Now they are under such stress that they either do not have money to lend or are scared to do so.

The banking problems have been pretty bad so far. Unfortunately, the worst is definitely yet to come. This is why you see the Federal Reserve taking actions that it did not do even in the Great Depression. Yes, it is that bad.

While there has been a lot of focus on the subprime loans as the cause of this mess, such an explanation is too simple. There were plenty of other loans that were bad as well. Stated income loans, known as liar loans, are now failing.

Another wave of defaulting loans are going to sink a lot of banks. Throw in a slowing economy and inflation and we have a huge mess coming. There is no light at the end of the tunnel until late 2009 at the earliest.

How bad are things? So far, most bank failures have been limited to small regional banks. Now, however, it is expected that at least one huge bank used by millions is going to fail by the end of the first quarter of 2009. Nobody knows the name.

Without money, nobody can transact real estate purchases. While the real estate market might be prepared to get back on the upswing, the banks are not. Until they repair their balance sheets, real estate will continue to lag.