If the last two years are any indication, sometime in the near future “equity” might become one of those outdated words that sounds stilted and foreign, like “tolerance” and “candor.” For decades, homeowners relied on home equity for capital, wealth, and security. But as the subprime fallout continues, many homeowners are finding home ownership not only a risk, but a serious burden they can’t unload.

Home values nationwide have already plummeted 18.4 percent since July 2006, according to the Standard & Poor’s/Case-Shiller 20-city index. And after Panic Monday’s collapse of Lehman Brothers and the buyout of Merrill Lynch, housing experts say home prices will likely drop much further.

Banking analyst Meredith Whitney warned today that the recent implosion of major lenders means the credit market will shrink and home values will further diminish. Fewer mortgages will be available, she argues, and the magnitude of home-price declines in the next few years could likely exceed expectations of both the markets and the companies, she wrote in a Monday note, according to Reuters. She added that since the onset of the credit crisis over 14 months ago, less than $100 billion worth of mortgages have been securitized.

In January, before the last week saw the failure of seven major lenders, Merrill Lynch warned that home prices could drop by 25 to 30 percent over the next three years. Yet that was a prediction based on the amount of liquidity available then, which will shrink in the wake of the demise of major lenders and investment firms like, not so ironically, Merrill Lynch, which was purchased by Bank of America in a shotgun sale on Monday. With liquidity drying up, lenders will further tighten their belt and owning a home will become more difficult as lending standards increase, Whitney warns.

The news isn’t good for many Minnesotans, who are sitting on a housing surplus and facing compounding negative equity. The September Housing Supply Outlook from the Minneapolis Area Association of Realtors reveals there’s more than a nine-month supply of homes in the Twin Cities. That means it takes the average homeowner nearly ten months to sell their home.

The MAAR likes to tout the fact that the number of homes for sale has decreased slightly over this time last year, by a total of 9.2 percent. But it’s really a quick-spin numbers game that ignores the fact that many homeowners have taken their home off the market and are reluctantly (and at the cost of nearly everything else) holding on to their homes as prices for singe-family homes in the Twin Cities dropped more than 10 percent for the same period last year. If inventory is reduced, it’s due in part to the length of time it takes to sell a home and the price plummets turning away wannabe sellers. The reality remains that there’s still a nearly 100 percent increase in the inventory supply from 2005, when the average Twin Cities homeowner saw their home on the market for only 4.6 months.

What’s more, MAAR likes to look to a slight uptick in sales this summer as further proof that a change is a comin’ to the beleaguered housing market. But the organization again fails to highlight a key reason for the increase: foreclosures. Pending sales this summer were up 12.7 percent over last year, “good news” for home sellers, MAAR claims. But the truth is that foreclosures and short sales continue to plague the Twin Cities and have directly affected the the three-month increase in snatch-’em-up pending sales. It’s not exactly a rosy picture nor one that foreshadows a turnaround when 21 percent of all home sales in the Twin Cities in July were either foreclosures or short sales. That’s a more than 100 percent increase over the same period last year, when those types of unload-for-cheap sales made up only 10 percent of the market share.

In fact, lender-mediated sales for homes priced under $120,000 increased 128 percent in July, while traditional sales for homes priced $190,001 to $250,000 fell a whopping 25.4 percent.

What does this mean for current home owners? Should they sell? Run? Hide? One economist thinks he has an answer to the crisis. Irwin Kellener, cheif economist at MarketWatch, says since it was the lack of transparency and regulation that got us into this mess, perhaps government intervention for homeowners and sellers–not just mortgage giants–is the best solution. In other words, until the next election, we’re all stuck in an uncertain game of wait-and-see.