Recent news has provided hope that housing is near a bottom.

The economy still grew in March, although at a crawl. Housing inventories are at previous 1991 recession highs, while mortgage interest rates are four points lower today.

But there's a lot to fear in the news. Inventories could get worse if the credit crunch doesn't improve. The elimination of subprime loans is being exacerbated by the large point spread between conforming and jumbo loans of as much as two percent.

And the latest jobs report shows weakness in the labor market. In fact the first-time filings for unemployment claims are up. Further, increases in salaries were wiped out by higher costs of goods.

The nation is a deer in the headlights when it comes to fuel. We're spoiled to artificially low prices compared to the rest of the world which pays twice to three times per gallon than we pay in the U.S.

Despite warnings that it couldn't last, America continued to build gas guzzlers and provide subsidies for overweight vehicles, although most SUVs have never even seen a farm or ranch.

Now that prices are rising, Americans are fearful that their bubble is bursting. Consumer spending is up, but only because prices are up.

It will take their fear to cool inflation. And it will take their greed to move the housing market forward.

Sounds ugly, but it's true. The financial press has done such an excellent job of guilt-jerking car owners and scaring the wits out of homebuyers, it will take the bargains of a century to get them to buy homes and cars again. For example, California is reporting that home sales in March were 24 percent below the previous year. The new median home price is $413,980, a 29 percent decrease from last year's $582,930. Inventories are at an 11-month high.

The fact that sales are being restrained by the high cost of jumbo loans is obvious from the days on market - it took 53 days to sell a home in California a year ago. In March 2008, it takes only four more days to sell.

What that signals is demand is there, but it's being subverted despite the attraction of much lower housing prices. The bottleneck has to be in loans.

If mortgage interest rates rise, that will take more buyers out of the equation, frustrating sellers and raising inventories further.

The good news is -- loan rates could fall again. If inflation is cooled and the dollar gets the support it needs from the Federal Reserve, mortgage interest rates will come down again, says mortgage expert and author David Reed. "A lot has to happen, but rates could dip below 5.50 percent or lower over the next several weeks."

Published: May 2, 2008

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