Why aren't more people buying homes?

There are obvious explanations (tighter credit, high unemployment) as well as less obvious ones, such as rentals being a cheaper alternative in many cities, especially when you're looking in the more urban areas. As you can see in the above chart, it's slightly cheaper to buy in L.A., although much depends on location and available interest rates. From NPR:

[Economist Mark] Zandi has been tracking home prices as they've fallen in cities and neighborhoods across the country. And he's asking this question: Does it make sense for people to buy a home right now? "I think the arithmetic is such that if you plan to live in your home five or more years, then you should really consider buying a single-family home in most parts of the country at this point in time," he says. "Prices have fallen so far, that single-family housing now is very, very attractive; very affordable [...] and it's now even attractive relative to renting."