But somebody has to buy the homes they are leaving behind and turn them into rental properties. The most likely buyer is a professional investor who purchases rental properties for a living. Yet, absurdly, government rules have made it exceedingly difficult to make loans to investors who want to buy up rental properties. This only adds to the shadow inventory"

The issue of investors not being able to purchase homes is a big one. There are many well qualified and experienced investors that have the means and ability purchase homes that can become rental properties, but because of lending guidelines, can't. This is ridiculous! You see the individual investor (even if it is set up as a LLC or Corporation) can only have so many outstanding loans. Meanwhile, the big boy banks and large corporations that invest in mega-million dollar properties can get just about all the loans they want.

So if the banks and the government are not going to allow small investors to obtain mortgages on properties, then the banks (and possibly the government) will have to become landlords and property managers for millions of residential properties. And that surely will not be good!

Getting back to my thought, is there widespread fear among homeowners and buyers? While there are plenty of reasons for widespread fear, I do not believe that there is. The reasons why I don't are as follows:

• The majority of homeowners are not underwater...at least not yet. According to statistics about 70%+ of homeowners have equity in their home.
  
• The majority of homeowners are willing to ride the storm out. Yes it could take a long while...years and years, but for now, they are willing to hang in there. Unfortunately, like those that remain when a strong hurricane is coming, some will perish financially by not selling when they should have. As for where we are on Saffir-Simpson Hurricane scale when it comes to the housing market, I would say a Category 3: "Devastating Damage Will Occur." And yes I see the potential of moving to a Category 4 Hurricane where there will be "Catastrophic Damage." And perhaps some areas have already suffered this.
• The majority of homeowners are employed and have the  means to pay their mortgage. While unemployment could rise and remain high for quite a while, right now it is not affecting the masses when it comes to fear in the housing market.
  
• If there was widespread fear right now, then the majority of homeowners would have their homes for sale, but they don't. According to the census there are roughly 129 million housing units in the U.S. Right now there are only about 4 million +/- for sale. That means that less than 4% of the homes in the U.S. right now are for sale. Of course this does not take into account all the shadow inventory; if it did, it would likely come in around 10% or less.