Are we headed for a double dip in housing?

Well, I am on the fence on this one! What an unnatural positon for me! Here is what I see in this debate:

Local inventories are down, way down, from the highs in the past two years. But nationwide things aren't as good. Nationwide inventories are running about 7 months at the entry level and higher as you go up in price. Here we see only DAYS of inventory below $800,000 and several months above that price point.

Prices seem to have stabilized on homes priced below $800,000 and are still declining slightly above that figure. Sales volumes are way up compared to even a year ago locally at prices below $800,000. High-end home sales are also up but only slighthly.

The end of the purchase of mortgage backed securities is scheduled for next week. However, if the housing market falters, or rates start to rise precipitously, expect the Fed to jump back in somehow and support rates. The only problem with this is that more money will be funnelled into the economy "artificially" by the Fed and could be tough to retract later. Consider a loan broker's dilemma. He must loan money to allow his business to survive. If rates rise, he will mkae fewer loans but he still survives. However, if he cannot sell the loans he makes, he will not survive as he can't make new loans without available mortgage money. If the fed stops buying MBS, then the largest purchaser of these securities will be gone and to take up the slack, new buyers will have to be found. Thus rates the lender pays on mortgage backed securities will have to rise. To offset this rise, rates on new loans will have to rise. Lenders will survive but it's a balancing act. I cannot see how mortgage rates will not rise in the coming months!

The Home Buyer Tax Credit is set to expire for new contracts on April 30th, a scany five weeks from now. The tax credit purchase price limit is why the number $800,000 appears so frequently in the above comments. This credithas been the primary driver of previously-owned home sales for the past two years. We are definitely pulling buyers forward similar to the "cash for clunkers" program. What will happen to sales after April 30th? I expect a decline at prices below $800,000. Above that level, things should not be affected unless mortgage rates change.

Employment remains near 10% and is a significant drag on the economy and home sales. As long as unemloyment remains high, sales will be sluggish. While investors and cash-rich buyers are buying today, there is a limit to how many of these buyers there are.

Some banks are showing a reluctance to foreclose on owners IF they are involved in either a re-negotiation of their loan or a short-sale. Even when owners have stopped paying their mortgage, banks are holding off on some Notices of Default if the owners are in a short sale transaction.

I can go on and on, but the bottom line is I think it's 60-40 odds that we will have a double dip in home sales after April 30th. How deep and how lengthy the second dip is will have a huge effect on the rest of the economy.