The reason buyers have become scarce in housing is simple: the three pools of buyers which drove recent sales are drying up.

The cliché has it that "all real estate is local," and while that is certainly true in a broad-brush way, it's equally true that some trends cut across local and even regional markets. Though some of the evidence is anecdotal, the national market appears to be subdivided into three categories of buyers:

--Middle-income households who took advantage of the Federal tax credits to buy homes in good neighborhoods at prices under the FHA ceilings for conventional loans.

--"Bottom fisher" investors who snapped up distressed properties for cash.

--Overseas investors seeking to put their capital to work in distressed U.S. real estate.

The price and sales spike was driven by supply and demand: an artifically low supply (a vast shadow inventory was held off market) was snapped up by buyers seeking to exploit a one-time credit and/or "bargain prices" set by massive numbers of foreclosures.

High-value, high-demand locales saw substantial spikes in price while lower-value areas (with high unemployment and low wealth creation) saw prices continue their slide.

This is supported by the latest S&P Shiller-Case Index, which found that prices in San Francisco have risen 18 percent while home values in hard-hit Las Vegas are still declining.

Analysis of sales by zip codes and price levels by Doctor Housing Bubble found that sales in areas with prices below the FHA conventional loan caps—$271,050 in many parts of the country and as high as $729,750 in pricey zip codes—rose sharply between January and May 2010 as buyers took advantage of Federal tax credits.

Homes priced well above the FHA guidelines that require hefty down payments and jumbo mortgages are not doing as well. Indeed, the percentage of seriously delinquent $1 million-plus loans rose to 13.3% in February, 50% higher than the 8.6% overall delinquency rate.

While sales have surged in lower priced homes in desirable areas such as San Diego--inventory fell to a mere 2.6 months earlier this year--higher end homes are languishing: it would take 12 months to move the homes above $1 million at current sales rates in san Diego county, and three years to unload the inventory of homes above $2 million.

Cash buyers--a code-phrase for investors rather than regular home buyers--accounted for fully 30% of all sales in the huge Southern California metropolitan market in February of this year. Cash buyers have driven up prices in beaten-down markets such as San Diego by up to 14%.

Much of this cash buying has centered on foreclosed properties--REOs (real estate owned) in real estate parlance. In the first quarter of 2010, sales of REOs accounted for fully 31% of all residential sales.

To put that in context: there were 1.2 million foreclosure sales in 2009, more than 25 times the amount logged just four years earlier in 2005 at the top of the housing bubble.

Ironically, as prices rise in response to this investor demand, the number of "bargains" available diminishes.

What remains to be seen is if these cash buyers plan on "flipping" their investments for a quick profit--a plan which depends on prices continue to rise and inventory staying modest--or hold them as rentals.

According to reports from heavily-discounted markets such as Miami, foreign investors are still buying condos for cash. Condos which once fetched $190,000 can be had for $75,000 to $100,000, and European-based buyer Leroy Jean Francois bought 47 condos this year alone for clients in France and Switzerland.

Going forward, the question "What happens to home sales after the tax credit ends?" has been definitively answered: they tank.

Now that the euro has fallen from 1.60 to 1.25-1.30, it remains to be seen if that 20% increase in the cost of everything priced in dollars (such as Miami condos) will cool off foreign buying of U.S. real estate.

As for cash-heavy American bottom-fishers: that pool is not unlimited, and now that prices and sales are receding once again, there will be fewer investors betting for quick profits from flipping foreclosed houses.

Investors who bought homes to rent out will soon find (if they haven't already) that generating positive cash flow from rentals isn't as easy as they might have thought.

If all three pools of buyers are shrinking, then what new cash-rich cadre will appear to pick up the slack? There is precious little evidence that millions of qualified buyers are gearing up to buy the hundreds of thousands of U.S. homes and flats sitting on the market or languishing in the shadow inventory.


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