DEFENDING THE INFUSION: “We have taken extraordinary measures, because these are extraordinary circumstances.” —President Bush, Oct. 15 Photo: Getty Images In mid-October, the U.S. government turned on a $250 billion heater in an attempt to thaw the iced-up world of credit markets, announcing a three-pronged initiative to reignite the flow of funds between banks and encourage lending to customers.

The plan called for the Treasury Department to inject $250 billion into banks and thrifts by buying up their stocks and guarantee new bank debt for three years while the Federal Deposit Insurance Corp. would guarantee banks' unsecured debt and non-interest bearing deposits.

But even as the credit markets have begun to warm, a deep freeze remains over the real estate market, suggesting more pain ahead for the deeply troubled housing economy.

Banks' liquidity fears may have been somewhat allayed by the government's action, but none of that good fortune appeared to be trickling down into real estate in the days following the move. In fact, reports from markets as disparate as Charlotte, Dallas, and Phoenix indicate that the government's liquidity shot may have worsened the standoff between banks and builders over land.

“Banks are not playing ball anymore on REOs now that the government's going to bail everyone out,” said one informed industry source who asked to remain anonymous. “They're not willing to entertain anything below listing price.”

Not that they ever really were, except for perhaps on a one-off basis here and there when they needed to unload foreclosed assets from their books.

Deals have been all but deadlocked as banks looked to maximize the value of their distressed real estate portfolios while well-capitalized builders, developers, and other investors have been on the prowl for rock-bottom pricing.

Bid-and-ask spreads for land in most residential growth markets remain stuck far apart because the land's underlying value remains a matter of perspective. So few houses are being sold that it's hard to mark pricing's floor, and those that are being sold are being written down so far as to make their land cost-base a losing proposition. Nobody–neither home builders nor developers, banks nor property owners–can afford to model the value of their lots against today's market of deep discounts and foreclosure sales, leaving sellers and buyers in a stalemate.

The issue was a hot topic of conversation for a panel of land experts at the Developer Conference in Las Vegas in mid-October.

The issue was a hot topic of conversation for a panel of land experts at the Developer Conference in Las Vegas in mid-October.