The HUD announcement that it would allow the $8000 first time homebuyer tax credit to be used for a downpayment didn't last out the week. All mention of it was pulled from HUD's home page.

Apparently the program as orginally discussed looked too much like the down payment gift programs that were essentially eliminated last year because of the higher foreclosure rates associated with those programs.

NAR (National Association of REALTORS) says HUD is retooling the program and that there will still be a way to do this.

Stay tuned to this space for updates.

In the tough seller's market of the last few years a lot of sellers have tested the waters by putting their house up for sale, and, in the end, retreated. All those houses that will theoretically come back on the market when the market improves are called shadow inventory.

We're looking at two basic kinds of shadow inventory. The first is individual owners. They want to sell, maybe even already tried and are just waiting for the right moment to put their home on the market.

The second kind of shadow inventory is foreclosure inventory. The banks are reportedly sitting on 600,000 homes nationwide that they've already foreclosed on, but aren't yet putting on the market.

Both of these categories have the potential to dramatically increase inventory, which has been steadily dropping for at least a year now.

The thing is, I'm not overly worried and I think the danger has been exaggerated.

Yes, there are a lot of homeowners who still want to sell. But it's not just the low number of sales that keep them from trying. They also don't want to sell at these prices. And, if they're going to wait for prices to recover even a quarter of what they've lost, I think they're looking at waiting several years. Some of those homeowners will have changed their mind by then. They'll remodel the house to suit their needs and they'll stay. Those that do still sell will not do so in one huge mass. Some will have a higher tolerance for lower prices and will sell sooner. Others will likely wait a year or two or three. I don't believe there will be some magical month where all this "shadow" inventory pops onto the market at once.

The foreclosure properties are a bigger concern. But I'm still not convinced it will be a huge problem. A lot of those 600,000 homes will be in CA, FL, NV and MI, places hit harder than we were. So, the numbers will likely be smaller than people anticipate. Secondly, the bulk of these are likely to be at the lower price ranges. We've actually got a shortage of inventory at those price levels. In places like Prince William County and even Culpeper County, a lot of inventory would be absorbed very quickly by first time buyers. And, I believe the banks are deliberate spreading out the foreclosures in order to manage their losses. It's not in their interests to dump everything on the market at once.

So when someone tries to scare you with all the shadow inventory waiting to hit the market, take it with a grain of salt. It may not be all that bad!

The housing affordability index is at it's highest point in 20 years. Since they don't seem to have been measuring this much before 1988, you could say it's at its highest point ever. I'll stick with the 20 years figure.

That's very good news as one of the biggest problems in the real estate market for the last three years has been that home appreciation had completely outstripped the increases in wages. For most first time buyers, the starter home had become unaffordable. That will take the air out of a market in a hurry.

Now, in fact, what we're seeing is all the activity at the lower end of the market. Investors and first time buyers are buying foreclosures and competing to get them.

Here's my only small concern with the affordability index. It measures the ability of people with income to buy a home. Given the increasing number of layoffs, there are a lot of people who are suddenly without income or with a lot less of it. And, people worried about their jobs don't go out and buy homes, unless they're downsizing.

So, while I still can't tell you that this means we've hit bottom, it's a very good piece of good news. And, there's been a little more of that in the last month or two!

In an office meeting today we talked about the fact that new household formation is down 70%. What that means is that young people who would typically be leaving the nest and getting their own place, aren't. They're staying with Mom & Dad for a much longer period of time than would normally be expected.

Some part of this is due to the still unaffordable pricing on most area homes. Wage increases haven't come anywhere near keeping up with increased housing costs. My personal opinion is also that there's also less pressure on young people to go out on their own.

Regardless of the reasons, first time home buyers are sitting on the sidelines. As long as that's true, it's going to remain tough to sell the homes that typically appeal to first time home buyers, such as condos and townhouses. And, if no one is buying those, it's tough for those owners to sell and move up to their next home.

Even with the tighter credit guidelines, there are still programs out there that can get first time buyers in a home with very little cash. That's one way to break the logjam.

And, Mom & Dad might want to consider real estate investing as a way of securing some assets for retirement and moving the kids out of the house. Rent it out to your kids and at least it's the first step on the way to independence.

Whatever the solution, until we find it and get these new homeowners to start clearing off some of this inventory, it's going to continue to be a tough market for the sellers!