Carl Olson at Ignatius Insight Scoop has a good post regarding the state of the Catholic novel. Carl concludes his post by saying "it is hard to disagree with Kenney's somber assessment of the state of Catholic fiction in the U.S."
For me, the sad state of Catholic fiction can be summed up in a line from Thomas Jodziewicz, quoted in the Olson post: "He offered the Catholic writer Flannery O'Connor as an instance of a recent author with this gift of making the obvious new." Flannery O'Connor was a gifted author, one of the greatest Catholic writers. But she died in 1964. If she's a recent example, we really are in trouble.
Not to say that there aren't good Catholic novelists out there - Michael O'Brien, for example, who's Father Elijah had a profound influence on my life (remind me to write about that sometime). Or Richard Dooling, who's Bet Your Life deals with explicitly Catholic philosophies (warning to potential readers: that's not all he deals with explicitly). And of course Tom Wolfe (again cited in Olson's story), even though he's not Catholic, addresses the questions of right and wrong as well as anyone around.
So all is not completely lost. But for a faith that in the past produced novelists such as Evelyn Waugh, Graham Greene, and Walker Percy, it does show that we have a ways to go.