Spring Housing Season

I don't know what the official end of the Spring housing market is, but it seems as if the experts have called the close, and it ain't great.

Fuse | Getty Images

Last week, after the folks at the vaunted S&P/Case Shiller Indices put a period on the home price double dip, which others had been reporting for months — and The New York Times did a piece on falling home prices — it seemed like suddenly the housing watchers got nervous again.

Over the weekend, JP Morgan Chase's housing analysts revised their outlook lower for home price recovery, "largely based on existing home sales coming in lower than expected." While they expect that regional divergences will increase, "Our new base case is down percent from here (Q1 2011) and bottoming in mid-2012. We expect home prices to modestly improve over the summer months."

Soon after, Credit Suisse's Monthly Survey of Real Estate Agents announced: "Weak ending to the Spring season." CS's Daniel Oppenheim notes, "A lack of urgency continues as does a fear and hesitation of buying if prices still have further to fall." This, we knew.

"Most worrisome was the lengthening time needed to sell a home, as there are few qualified buyers and those qualified buyers are waiting for the right price." Buyer traffic is weak, and distressed markets are showing the best activity. This is a key point because of an argument that was going around the blogosphere last week.

Core Logic put out a price report showing that if you remove distressed properties from the equation, home prices are basically flat, not falling, as the rest of the reports scream. Housing bulls, including the former FHA commissioner, Dave Stevens, now head of the Mortgage Bankers Association, pointed to the report as evidence of recovery, but when I Tweeted about the Core Logic report, well-known mortgage analyst Mark Hanson protested:

"Why in the world would they discount distressed sales when they are the market, they support the market, and without them as support, house sales volume and sentiment would tumble. Further, MBS [mortgage-backed securities] loss severities and bank loan loss reserves are based on distressed sales not organic sales. In short, distressed sales carry more weight across the things that matter to the housing and financial markets."

I'm watching a segment on MSNBC right now about how renewed trouble in housing might affect the 2012 presidential election. Suddenly housing is back in the headlines, not that it ever should have left.

Politicians may point to a slowdown in new mortgage delinquencies, and claim that the housing recovery is fine, but just slow. That should not be the focus. The focus must be on the more than 11 million underwater borrowers, and not just because some might walk away from their homes.

The plain truth is that not all homeowners who owe more on the mortgages than their homes are worth are going to walk away from said homes, and abandon their lifestyles and credit ratings in the process. Not near everyone.

But negative equity has a huge effect on lifestyle, spending and mobility. There is an enormous inventory of unsold homes on the market and about to come on the market, and if current homeowners can't sell their homes, then they can't buy new ones.

That may sound kind of "duh," but I don't think enough bankers or policymakers get it. You cannot rely on investors and first-time home buyers to eat up an unprecedented backlog of inventory.

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick