As for home sales, the reason so many people cannot move isn’t entirely negative equity, but what’s called “near negative equity,” or having less than 5 percent equity in your home. 10.8 million or 22.3 percent of all residential properties with a mortgage were in a negative equity position at the end of the second quarter of 2012, according to CoreLogic, but an additional 2.3 million borrowers had less than 5 percent equity. (Read More: Pending Home Sales Beat Expectations in July.)

The bottom line is that most move-up buyers, the ones desperately needed for a real robust housing recovery, cannot move if they can’t make enough in the sale not only to cover the mortgage but to cover real estate agent fees, closing fees and of course a down payment on a new home.

Much of the recovery in the housing market of late has been thanks to investors, who are often all-cash buyers and who do not have to sell a home in order to buy another. All that activity on the very low/distressed end of the market is pushing overall prices higher. (Read More: How Investors Are Skewing Home Price Recovery.)

Many Realtors with whom I’ve spoken have said yes, the low end is still on fire, and even the very high end is doing well because high end buyers don’t rely so much on credit. It’s the middle that is still suffering.

But wait! According to CoreLogic’s report, negative equity is concentrated on the low end of the housing market: “For example, for low-to-mid value homes (less than $200,000) the negative equity share is 32 percent, almost twice the 17 percent of borrowers with home values greater than $200,000.”

So with less negative equity in the middle, why is the low end moving and the middle not? (Read More: Where Are the Move-Up Home Buyers?)

Because the low end activity is largely in short sales (when the home is sold for less than the value of the mortgage) and foreclosure sales. That’s also where we’re seeing investors do all the bulk deals. Witness Fannie Mae’s sale of 699 properties earlier this week to Pacifica Group, a real estate investment company. The homes in that deal averaged around $111,000.

The middle of the market is still struggling with near negative equity, not to mention tighter credit the higher the loan value is. The more expensive the home, the bigger down payment you’re going to need to meet today’s tough standards. Home prices are going to have to come back a whole lot more strongly before the middle of the market is able to move again.

—By CNBC’s Diana Olick

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