The housing market is nearing bottom, but getting there remains dicey. Home sales are steady, more sellers are lowering their prices and the inventory of homes for sale is dropping.

Unfortunately, the inventory doesn't include the so-called "shadow inventory" of both distressed properties and those still held by owners who are underwater, owing more than their home is worth, and at risk for default, according to Radar Logic's recent "Housing is a Buyer's Market"

Also unfortunate, bu central to the recovery equation, buyers aren't getting the boost they need to buy.

Sales up

No doubt, sales of existing homes are up, according to the National Association of Realtors' (NAR) latest Trend Report.

In January, completed transactions on all existing homes increased 4.3 percent to a seasonally adjusted annual rate of 4.57 million in January, up from a downwardly revised 4.38 million-unit pace in December. The sales pace is nearly a full percentage point higher than the spike to 4.54 million in January 2011.

Chalk up some of those sales to affordability generated by record low interest rates, employment improvements, better-buying-than-renting opportunities and sellers getting a clue.

Sellers wake up

Coldwell Banker Real Estate says home sellers are "getting real" about pricing their homes in the 2012 Year of the Dragon.

More than half (51 percent) of Coldwell Banker’s surveyed real estate agents said sellers are more willing to price their homes competitively than they were at this time last year.

Radar Logic agrees.

"The price and sales trends observed in 2011 are consistent with sellers dropping their prices to meet bids from bargain-hunting buyers," and that's eating away at inventories, Radar reports.

NAR said the for-sale inventory of existing homes (single-family detached, condos, townhomes and co-ops) was down by a whopping 22.02 percent in February 2012 compared to a year ago, with shrinking supplies in all but two of the 146 major metro markets covered.

Unfortunately, some of the depressed inventory stems from millions of homes lurking in the shadows.

"Inventories will certainly increase in the coming months, especially in judicial states like Florida, as lenders process and list the huge backlog of distressed properties freed by the recent multi-state attorneys general agreement. The shadow foreclosure inventory is considerably higher than the total inventory on the market today. Unless properly managed, the disposition of such properties could easily undermine the progress that has been made to date," according to NAR.

NAR reported an inventory of 2.31 million existing homes for sale in January including distressed sales which accounted for 35 percent of sales.

The additional shadow foreclosure inventory is larger, NAR says.

Radar says there's one shadow inventory comprised of homes held off the market and other homes in the foreclosure process but not ready for sale.

Core Logic says yet another shadow inventory, underwater homeowners at risk of default, is more than 11 million.

Buyers market fear

And then there's that X Factor - buyers. Potential home buying consumers, not surprisingly, aren't confident the recovery is here.

More of them will come to market if rents continue to rise, banks loosen up on credit, and more jobs are available.

"Would-be buyers are still experiencing difficulty accessing mortgage financing. While rates remain near record lows, lenders remain risk averse and underwriting standards remain extremely strict," reports Radar Logic.

"Moreover, buyers remain apprehensive of purchasing new homes given their perception of a large inventory overhang that will weigh on home prices well into the future," Radar added.