Last week both residential construction and existing home sales were up modestly.

Median home prices and the number of homes sold are both up nearly 10 percent year over year. However, these indexes are improving despite the lackluster demand of traditional owner-occupied housing that has served as the backbone of the U.S. housing market. This traditional demand, or lack of demand, is a byproduct of confidence. A consumer's confidence in their job and job prospects, their confidence in the housing market, and their confidence in the country are what compel them to buy instead of rent a home.

The persistently high unemployment rate at or above eight percent, a drop in household net worth greater than 30 percent during the financial crisis, a decline in real wages, and political uncertainty surrounding the upcoming presidential election all conspire to create anxiety not confidence.

And to put it simply - anxious people don't buy houses; confident people buy houses.

This explains the 15.5 percent decline in owner-occupied purchases in 2011, and the corresponding seven percent increase in investment and vacation home sales. In August, first-time buyers only accounted for 31 percent of purchases, down from July by three percent, and down one percent year-over year.

All-cash sales also remain high.  All-cash sales made up 27 percent of home sales in August.  Investor sales made up 18 percent of the market, also up from July by two percent.

These housing market dynamics and market shares will need change to sustain a long-term housing recovery and stability, and traditional demand for owner-occupied and first-time home purchases for the average American family will require strong consumer confidence.  Given the current state of the economy and American politics, this restoration will take time.