The Housing Market Still Has The Blues

There are some strong negatives overwhelming the housing market...

1. Intermittently increasing interest rates

2. Bank repossessions surpass 1 million homes in 2010.

3. More than a 25% of borrowers are "underwater," meaning they owe more than their homes are worth.

4. "Strategic defaults" close to 31% of all foreclosures in March -- where "underwater"  home owners walk away even when they can still afford to pay.

And the scary truth: Right now, there could be more than 4.5 million homes that are ready to be sold but not on the market, also called “shadow inventory," according to a recent report by Barclays Capital.

This so-called "shadow inventory" is a recent phenomenon.

In the past, inventory was either tight or it wasn't. But now, with home prices so low and so many foreclosures on the market, both homeowners and banks have been waiting to put properties on the market. But as more sellers put their homes up for sale, supplies increase, which will depress prices again.

Rinse and repeat ad infinitum.

That vicious cycle could cause prices to bounce up and down for years, low or no appreciation and more homeowners in negative equity.