"Ha", my pal Charles said to me the other day, "you've missed the boat on housing Steve, the bottom is in and you still can't see it." 

And at that moment I just couldn't help myself.  I looked at him, let out a long sigh and my rolled eyes again.

You see, Charles is real estate agent friend of mine who has been taunting me for years now giving me the "I told you so"  bit at even the faintest rustle in the bushes.

And like Linus camped out there in his field, he now thinks he is seeing the Great Pumpkin after all.

And while I really do wish it was true, the facts simply still leave a lot to be desired—no matter how much Charles decides to rub his lucky rabbit's foot.

That's because what Charles and many others don't realize yet is that without the helping hand of government, none of this measly bounce would have happened at all.

And the bad news is that once the tax credits come to an end and the Fed stops buying mortgages, housing will be right back where it started.

In fact, the market might actually be worse off since interest rates have nowhere to go but up and the tax credits have only pulled demand forward. Think cash for clunkers.

On top of that, the dirty little secret is that there is a "shadow inventory"of foreclosed homes about to hit the market just in time for spring.

In fact, the banks have kicked this little can so far down the road now that there are 3 to 4 million homes out there that will need to be dealt with in one way or another.

Here's the story on that score...

From the Wall Street Journal by Ruth Simon and James R. Hagerty entitled: Delayed Foreclosures Stalk Market

"Debra and Arthur Scriven were served notice in June 2008 that their mortgage lender, a unit of Citigroup Inc., was preparing to foreclose on their home. Fifteen months later, the Scrivens are still in their home near Columbia, S.C., and battling to stay there, even though a dispute with the lender over how much they owe prompted them to stop making regular payments last year.

Legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing "shadow" inventory of pent-up supply that will eventually hit the market.

The size of this shadow inventory is a source of concern and debate among real-estate agents and analysts who worry that when the supply is unleashed, it could interrupt the budding housing recovery and ignite a new wave of stress in the housing market.

"There's going to be a flood [of bank-owned homes] listed for sale at some point," says John Burns, a real-estate consultant based in Irvine, Calif. When that happens, Mr. Burns believes, home prices will fall further, particularly in markets with large numbers of foreclosures. Overall, he expects home prices to decline 6% next year.

Ivy Zelman, chief executive of Zelman & Associates, a research firm based in Cleveland, believes three million to four million foreclosed homes will be put up for sale in the next few years. The question is whether the flow of these homes onto the market will resemble "a fire hose or a garden hose or a drip," she says.

Analysts who track the shadow market have focused primarily on the gap between the number of seriously delinquent loans and the number of foreclosed homes for sale by mortgage companies. A loan is considered seriously delinquent, which typically means it is headed to foreclosure, if it is 90 days or more past due.

As of July, mortgage companies hadn't begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn't yet acquired the property. The figures don't include home-equity loans and other second mortgages

Moreover, there were 217,000 loans in July where the borrower hadn't made a payment in at least a year but the lender hadn't begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren't in foreclosure, up from 8% a year earlier."

Of course, one of these days Charles will be right on this one and have a reason to crow.

It's just not today.

Related Articles:

"Good" Borrowers More Likely to "Strategic Default"

The Brewing Trouble at the FHA

Mortgage Delinquencies a Set New Record

Elizabeth Warren warns on toxic assets

Catastrophe averted, personal bankruptcies skyrocket

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