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The last, best hope for housing right now is robust investor activity; I've been saying that for years. Unfortunately, investors may be pulling back on the housing market, despite a surge in rental demand and prices.

The investor share of the home buyers fell to 19.6 percent in July according to one survey by Campbell/Inside Mortgage Finance, the lowest level in a year. The National Association of Realtors had it even lower at 18 percent. While the investor share is still high in the most distressed markets, like Miami and Phoenix, the fact that it's falling overall is a troubling sign, because investors have been a huge help in clearing distressed inventory.

"The inability of most investors to resell homes in the current housing environment has put a damper on their participation in the housing market this summer," the Campbell survey report. "Investors will ultimately rent out 48 percent of the properties acquired in the month of July 2011. A comparable figure for the month of July 2010 would have been investors renting out 28% of acquired properties."

But with rental demand rising, and rent rates rising, you would think investors would want to get in more, not less; alas, it seems investor mentality is still rooted in the final payoff, the sale of the home, and not the monthly dividend potential from rent. Investors are clearly being influenced negatively by the increasing warning bells from economists.

"Housing activity is expected to weaken along with the overall economy due to a renewed decline in business and consumer confidence and a softening hiring trend," says Fannie Mae's latest economic forecast out today. "One exception is the rental housing market." The report is titled, "Dark Clouds Looming Over Near-Term Outlook."

Paul Dales of Capital Economics points to rising new mortgage delinquencies for his double dip housing forecast. "The weaker economy and rebound in the unemployment rate are therefore already taking their toll on the housing market," he writes. He claims improvements towards the end of the foreclosure pipeline, as reported today by the mortgage bankers, "were due to nothing more than seasonal trends."

As the housing numbers turn ever more negative, the rumbles of action in Washington grow louder. Refinance and rent-to-own proposals, principal forgiveness plans, big bank settlement payoffs...they're all out there and they've been out there, but suddenly they're getting more traction. President Obama is expected to make some kind of housing announcement in his post-Labor Day speech on the economy, but all ideas are still on the table, each with its own barrier to entry.

So back to my original thoughts about investors. I was reading some Twitter traffic this morning suggesting tax breaks for investors to rent out homes. I don't think it's a bad idea. Years ago I suggested we stop vilifying investors as the negligent "flippers" who originally bid up the market to its inevitable destruction, and use them for the value they can offer. Consumer sentiment has shifted to renting and home ownership is falling. This is not a permanent phenomenon, but it will hang on until housing is firmly rooted in recovery, and the numbers start going up instead of down. This is a prime time for investors, with the help of government benefits, breaks and financing, to put a bottom in housing.

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