Investors are a driving force in the housing market, but their enthusiasm is constrained by limited financing options with more investors forced to pay cash for their homes as debt-driven financing remains restricted. And with housing supply only set to increase, the ability of these investors to absorb the overhang may substantially decrease. Primary activity in the nation’s key housing markets is made up of a significant portion of hard cash buyers operating in the distressed property space. Of this number, only 40% or so are estimated to have access to excess capital. Seventy-five percent of investor transactions last month were financed with cash, according to researchers who compiled the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. While investors are welcomed into the market for keeping sales flowing, an earlier report from HousingPulse warned investor cash levels would eventually be depleted, leaving the market in the hands of first-time homebuyers — many of whom no longer qualify for credit because of tightened underwriting guidelines. Looking forward, researchers who compiled the report expect home prices to dip further in 2011 due to limited financing options for investors and a growing gap between the supply of distressed properties and sagging demand from first-time buyers. One market source interviewed by the firm expects price declines of at least another 10%. “The fact that the recent rebound in existing home sales has been predominantly driven by cash buyers and investors places a question mark over the sustainability of that rebound,” said Paul Dales, U.S. housing analyst for Capital Economics, back in March. “The concern is that there may be a limited pool of such buyers and that first-time buyers will not be able to fill any void.” The survey showed the proportion of first-time homebuyers in the housing market dropped to 35.4% in June, compared to 37.3% in May. At the same time, the HousingPulse Distressed Property Index dropped to 44.7% in June from 46.7% in May. Even with distressed properties clearing the market,  HousingPulse noted “the gap between first-time homebuyers and distressed property supply was 9.3 percentage points in June,” suggesting that housing supply far exceeds demand. Not to mention, the market remains fearful of the eventual unleashing of the growing shadow inventory of foreclosed and short sale properties. In the report, Campbell/Inside Mortgage Finance quotes an anonymous California real estate agent as saying “there are tens of thousands of homes that have not even received a notice of default that have not made a mortgage payment in months or years.” The same agent said there will not be a bottom until the “economy turns in earnest and or the default inventory is exhausted.” The study concluded that investors have played a significant role since the end of the homebuyer tax credit by accounting for more than 20% of home purchases on average. Middle-class Americans seem to believe the dire forecast about home prices and future sales, and remain unlikely to meaningfully get into moving up the property ladder, much less buying second homes. Sixty-three percent of citizens surveyed for the First Command Financial Behaviors Index believe America is already in a double-dip recession, About 55% of those Americans who see the nation in the grips of a double-dip recession consider the weak housing market to be one of the key causes. Write to Kerri Panchuk. Jacob Gaffney contributed to this article.