Is Housing Nearing the Floor?

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James Erin De Jauregui for TIME

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The idea is to save people whose loans are salvageable from being tossed out of their homes, thus preventing even more inventory from being dumped on the market. "We still think foreclosures are a major issue for borrowers, homeowners and the housing market generally," says a source familiar with Bair's negotiations with the Treasury Department. A deal of some sort is expected within weeks.

How much the next President would further change any plan isn't clear. Both John McCain and Barack Obama have promised aggressive, but as yet vague, action on housing. McCain's proposals are more radical: getting the government to buy a large swath of the bad mortgages at cost and replace them with FHA-guaranteed, fixed-rate ones. But that plan could be seen as having a dampening effect on any bottoming in the housing market. Why? If owners know they can dump their illiquid home loans cost-free on the government, they have little incentive to sell.

Obama has proposed slightly less market-skewing alternatives. He wants to create incentives for banks to buy or refinance existing mortgages. He supported the so-called cram-down rule that would allow judges to modify mortgages when homeowners file for bankruptcy, a measure that was axed from the Wall Street bailout package.

Whatever the government does, home sellers had better resign themselves to lower prices. Nationally, the inventory of unsold homes is still large. In the greater Miami area, there are 110,000 single-family homes, condos and town houses for sale. Some 55,000 new foreclosures were filed in the first nine months of this year, and an additional 19,000 properties were taken back by lenders. In California, the median price for houses has dropped 41% in a year, according to the California Association of Realtors. In the L.A. area, the outlying suburbs of San Bernardino and Riverside have been hardest hit because of the number of homes owned by more marginal borrowers.

But even without government intervention, sales of distressed properties are up significantly. In and around Los Angeles, housing sales were up 83% in September over the prior year, with distressed properties notably contributing to the surge. "We're seeing a significant increase in sales activity over the past four or five months, but it is the moderate to low-end distressed properties--including foreclosures and short sales--that are showing really very significant increases," says Leslie Appleton-Young, chief economist for the California Association of Realtors.

Not all areas of the country are suffering equally. In Dallas, which never had a bubble, there has been no bust. Houses are selling on average in 81 days, below their 90-day historical average. Only the million-dollar homes are slow to move. In late September, Donald Trump stood atop his new, 92-story condo-hotel tower just off Chicago's Michigan Avenue. "There's an economic disaster going on in the country," Trump dryly acknowledged. "A lot of things you think will be built in Chicago and elsewhere will never happen. But we got this one built, and we're proud of it."