The iced-up world of credit markets--and trying to thaw them out--may merit all the attention it has received as governments and their central banks try repeatedly to reignite a "flow of funds" among banks amid a worsening economic crisis. Still, a similarly frigid market--the buying and selling of real estate assets, namely land--must also warm up before the deeply troubled housing economy can begin to get back on track.

Dallas-based Comerica Bank and Pasadena, Calif.-based East-West Bank have recently joined the ranks of IndyMac Bank, Key Bank, and Wachovia, among others with mega real estate asset portfolios sorely in search of bargain-hunting buyers. However, the bargains are not anywhere near good enough for the pros who look through the holdings to opt for the spoils. The banks thus far have been unwilling to capitulate enough on price because of the negative impact doing so would have on their overall assets, leverage ratios, and financial viability.

The exceptions to the rule are the one-off sales here and there, motivated mostly by expiring opportunities for land sellers to claim tax refunds against money-losing land deals; bid-and-ask spreads for land in most residential growth markets remain stuck far apart and going nowhere. It may be well into next year before banks, home builders, and other land purveyors find takers for what they have for sale.

The reasons? There's still no way to attach value to the stuff since there are so few houses being sold, 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, neither banks nor property owners--wants to or can afford to model the value of their lots against today's market of deep discounts and foreclosure sales, so sellers and buyers are in a standoff. At least, that was the conclusion reached by a panel at the Developer Conference held in Las Vegas in mid-October.

"The expression a year ago was that you did not want to catch 'the falling knife,'" said Albert Praw, CEO of Los Angeles-based Landstone Communities. "Now, I'd say it's more like you don't want to catch a falling chain saw." Chris Ward, managing principal of Lake Mary, Fla.-based Magnolia Florida, added that he's looked at more than 300 deals in the Sunshine State, priced at more than $2.5 billion, and made offers on 20. But he's closed on zero.

"On average, I'm at 30 cents on a dollar on my offers, and the banks are at 80 cents," Ward said. He believes affordability--a trend-normalized relationship between household income and home prices--will ultimately determine the timing and price base of land transactions. While labor and materials will probably not represent much opportunity for price reductions, municipal entitlement and impact fees might be an area to hope for savings--but the biggest delta is the lot price itself. "If banks are forced to mark assets to market, then I can buy," Ward explained. "If they're not forced to do that, maybe the government will set up some mechanism for us to partner with the banks [to take a position in their real estate acquisition portfolios to work them through]."

While it appeared just eight to 10 months ago that liquidity amassing in all corners of the globe was champing at the bit for home building lots that would hit tomorrow's pipeline, a calamitous seven-month slide into financial chaos has heightened caution on the part of professional money to the point where no deal seems safe while wiping out a fair amount of liquidity.

"All the government initiatives focused on the credit markets first, but everyone knows that, to stabilize housing, something's going to have to happen to stop foreclosures," said Laurence Pelosi, executive director for merchant banking at Morgan Stanley. The second round of federal initiatives will address foreclosures, especially as foreclosure sales depress prices by an additional 20 percent to 40 percent in their markets. "The foreclosure market will top out and normalize sometime between late 2009 and 2010, and then we'll see transaction volumes up again," Pelosi said.

Learn more about markets featured in this article: Los Angeles, CA.