Nick at the Wall Street Journal has captured the current market conditions, and adds some anecdotal evidence to the The Big Cancellation coming later when sellers give up, rather than lower their price – here’s an excerpt:

Reports should show that completed transactions of home sales held up through June. But newly signed contracts in May and June have plunged.

To be sure, some housing markets show signs of healing. Home-sales activity in New York, Washington, D.C., and parts of California continue to improve. But other markets, including Tampa, Fla., and Chicago, face rising foreclosures and weak job growth.

Low mortgage rates and falling prices have made homes more affordable in many markets than at any time in the past decade. But those affordability gains have been offset for many buyers by tighter lending standards, particularly for “jumbo” loans that are too large for government backing. Banks are requiring down payments of 20% and more and strong credit scores because they must hold jumbo loans in their portfolios.

More broadly, the housing market faces two big problems: too many homes and falling demand. More than seven million borrowers are 30 days or more past due on their mortgage payments or in some stage of foreclosure. Rising foreclosures will keep pressure on prices as banks put more homes on the market.

Last month, nearly 39,000 borrowers received government-backed loan modifications, but more than 90,000 borrowers fell out of the program, the Obama administration said on Tuesday.

Moreover, the pool of potential buyers remains constrained by the unprecedented number of homeowners who are underwater, or who owe more than their homes are worth.

That’s making it particularly hard for traditional “trade up” homeowners like Maria Billis to pull the trigger on a home purchase. Ms. Billis can’t sell her townhouse in Boynton Beach, Fla., because its value has fallen by a quarter. That puts it below the $160,000 that she owes the bank.

The 31-year-old human resources consultant, who married last month and wants to start a family, found a half-dozen homes in her price range but doesn’t want to sell her current home for less than the amount owed. She has considered buying the new home and renting the townhouse, but concedes, “It’s a big risk.”

Mortgage-finance giants Fannie Mae and Freddie Mac also are starting to push more repossessed homes onto the market. The companies owned 164,000 homes at the end of March, up 80% from a year ago.

Another reason inventory is rising: “Unrealistic sellers have flooded the market” after reports of bidding wars and home-price increases earlier in the year, says Steven Thomas, president of Altera Real Estate, a brokerage in Orange County. The amount of time that homes there have sat on the market there has swelled to 3.78 months, up from 2.35 months in April.

“The sellers think the market’s coming back. They’ve tacked on an extra 5 to 10 to 15%. The buyers aren’t going for it,” says Jim Klinge, a real-estate agent in Carlsbad, Calif. Over the next six months, “it’s going to feel like a double-dip because sellers are going to have to lower their prices.”

Not all sellers will take that step. Jerry Anderson has listed his four-bedroom home in Dana Point, Calif., on and off the market for the last two years. He’s cut the price to $1.25 million, down from $1.75 million, but hasn’t had any offers on the home, which has four bedrooms, three fireplaces and ocean views.

Mr. Anderson, who bought the home in 1987, says he’ll take it off the market in December if it doesn’t sell rather than cut the price.

Matt Carney listed his Moreno Valley, Calif., home for $337,000 in February, and lowered the price on Tuesday for the third time, to $297,000. He says he can’t go any lower because he owes $274,000 on the home and doesn’t want to dip into savings to pay for transaction costs.