"Pent-up demand." That is the rallying cry of the housing bulls, as they forecast the great recovery of 2012. So many potential buyers are doubled up with family, stuck in undesirable rentals or just plain afraid to put their current home on the market, but that's about to change, say these optimistic prognosticators.

"Inventories [of unsold homes] have been coming down, showing very healthy declines," Ivy Zelman, CEO of Zelman and Associates told the Wall Street Journal. And Zelman is new to the bull ring, as she is famous for predicting the housing bubble in the first place.

Pent-up demand exists, no question, but it has nowhere to go right now for the vast majority of organic home buyers. When I say organic, I'm excluding investors from the mix, because that demand is high and building up cash like mad. I mean regular lower to upper middle-class Americans still struggling in today's rough economy.

"There are relatively few borrowers that can qualify for a mortgage given today's tight lending standards," says Laurie Goodman, Senior Managing Director at Amherst Securities. "Aside from FHA and VA mortgage, you need 20 percent down, and that's very, very difficult for most borrowers."

Goodman, one of the best number crunchers I've come across in this field, claims there is far more distress in the housing market than some of the leading mortgage data providers portray. She counts eight to ten million more foreclosures over the next six years, because she adds borrowers currently in mortgage modifications.

"That includes borrowers who have never missed a payment before, but are deeply underwater and are apt to default because borrowers just like them are defaulting on a regular basis," Goodman contends.

She notes that household formation has been running very low of late, just 5-800,000 a year. A normal level is 1.1 to 1.2 million units a year.

"Even if we go back to 1.2 million units a year, and even if 50 percent of those are home buyers, which I think is a very, very high number [the rest being renters], that won't be sufficient to clean up the huge overhang of supply we're going to have over the next four to six years," she calculates.

Why is 50 percent high? She calculates on:

"The homeownership rate for the U.S. as a whole is 66 percent. If you take out the borrowers who haven't made a mortgage payment in a year it is 62 percent. The Center for Joint Studies at Harvard estimates that out of the 1.2 million units per annum household formation over the next decade, 70 percent will be minorities, who have lower home ownership rates. In this context, 50 percent seems generous."

Her conclusion, and the one I've been promoting for over a year now, is that the only way to re-balance supply and demand is to get investors into the market in force to buy up these properties and meet the huge rental the demand that will continue for several years. As we reported last week, hedge funds are busy working on deals, but government needs to help. Fannie Mae and Freddie Mac are currently sitting on a huge supply of foreclosed properties and facing even more down the pike.

The Federal Housing Finance Agency (Fannie and Freddie's conservator), along with the U.S. Treasury Department, need to get moving on their so-far inchoate plan to sell these REOs in bulk to investors, and in doing so, make sure said investors are provided with financial incentives to make it worth their while. As Goodman notes, these investors will be buying single family homes, not multi-family apartment buildings (which have identical units), so they need to build out property management organizations to handle repairs, manage tenants and keep the properties rented.

"I fully expect that they will end up implementing something at some point this year," adds Goodman, "because there is simply no choice."