The last thing U.S. real estate needs is for a bunch of lending banks to collapse. But that worry is the latest cliffhanger bearing on commercial and residential property markets. Regulators fear more small banks will fail under the weight of bad loans as real estate values keep falling. That would pull a rug out from under some commercial property owners. Stuck without loans, they could be forced into distress sales. The Federal Deposit Insurance Corp. anticipates as many as 150 bank failures in the next few years, largely due to bad real estate loans. Bank analyst Mark Fitzgibbon, with investment banker Sandler O'Neill & Partners in New York, suggests that problem loans will plague small banks for another 18 months. "So far, the worst-performing loan segments have been residential mortgage and construction lending," he said. "But my guess is that commercial real estate will be impaired by the softening economy, too. So the problem is likely to get worse before it gets better."

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As automakers dropped their latest batch of awful sales numbers on the market on Tuesday, reinforcing the gloom spreading across the economy, the troubles confronting American workers seemed to intensify. As automakers dropped their latest batch of awful sales numbers on the market on Tuesday, reinforcing the gloom spreading across the economy, the troubles confronting American workers seemed to intensify. Plummeting home prices have in recent months eliminated jobs for hundreds of thousands of people, from bankers and real estate agents to construction workers and furniture manufacturers. Tighter lending standards imposed by banks in the wake of huge mortgage losses have made it hard for many Americans to secure credit — the lifeblood of expansion in recent years — crimping the appetite of consumers, whose spending amounts to 70 percent of the economy. Joblessness has accelerated, and employers have slashed working hours even for those on their payrolls, shrinking the size of paychecks just as workers need them the most.

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Many U.S. cities where home values have taken a double-digit drop have seen their sales rise by a similar measure as foreclosed homes -- usually a sign of market distress -- are sold off at a discount, paving the way for a recovery. Many homes in such regions were seized by banks and are, in industry jargon, 'real estate owned' or REO properties that have had their prices slashed when put back on the market. "In this market, there are so many REOs that the banks are getting their clocks cleaned," said Mark Partipilo, a prospective Las Vegas real estate investor. On a tour of the brown lawns and bare windows of foreclosed properties in southern Nevada, Partipilo said he smelled opportunity. "This might not be the bottom, but waiting six months might be too late," said the 36-year-old Chicago native. A deep nationwide downturn in sales, prices and housing construction has pushed the economy toward recession. However, some hard-hit cities are now seeing a strange whiplash of sinking values and rising sales.

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Consumers fell behind on loans secured by their homes at the fastest pace in two decades in the first quarter, signaling deeper distress in the economy, the American Bankers Association reported Wednesday. Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1 percent of accounts in the quarter, the Washington-based group said in a statement. Delinquent credit-card accounts increased 13 basis points to 4.51 percent, the highest since 2006. Late rates worsened in five of eight categories of nonrevolving loans tracked by the group. ''It's all bad news because people who had spending plans based on credit will have to cut back,'' said Nigel Gault, research director at Lexington, Mass.-based Global Insight. ``People overstretched to take advantage of equity in their homes, equity which may not be there anymore.''

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Wall Street is bracing for regional and small banks to fess up to large losses from their mounting volume of soured construction loans made primarily to home builders. According to the Federal Deposit Insurance Corp., $45.4 billion of the $631.8 billion in construction loans outstanding at the end of the first quarter were delinquent. When banks announce second-quarter results in coming weeks, they are expected to report sharp increases in loans that builders can't repay. Banks are also facing intensifying pressure from federal and state regulators to deal with the problem loans on their books. That will put additional pressure on an already stressed financial system. Banks have begun to dump bad construction and land loans at discounts, curtail new lending and halt construction projects that are under way to preserve capital. Some analysts even see a wave of bank failures as a possibility. "Across the industry, the second quarter is going to be a tough quarter," says Keith Maio, chief executive of the National Bank of Arizona.

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Rock-bottom home prices have finally begun to lure vulture real estate investors into the fray. Sharon Restrepo, a broker in South Florida, where home prices have dropped nearly 27% over the past 12 months, recently bought a three-family home in Cape Coral from a very motivated seller for a mere $65,000. It listed for $195,000. She can rent the three apartments out for about $1,500 and turn a profit, while she holds on to the property until the market recovers. "The savvy investors here," she said, "are buying up everything they can." Even in the Seattle area, where prices are down just 5% year-over-year, small investors like Liberty Capital, a three-man operation, are snapping up cheap properties. Liberty's portfolio manager Davis Hsu has purchased four homes this year, including a "very clean" 2,700 square foot four bedroom in suburban Federal Way, for about $330,000.

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Legendary home builder Levitt and Sons of Fort Lauderdale intends to go out of business after 79 years. The builder, which filed for bankruptcy protection from creditors last fall, revealed in court papers late Friday that it plans to wind down operations. A bankruptcy judgestill must approve its liquidation plan. "It's abundantly clear and fair to say that Levitt and Sons will not reorganize," said Paul Singerman, the builder's bankruptcy lawyer. "It's just an awful market for residential developers." Levitt and Sons couldn't survive the housing slump, one of the worst in decades. A glut of unsold houses, rising cancellations, the credit crunch and lost revenue from falling home prices have hammered the construction and real estate industries. "These pricing pressures are expected to continue for the foreseeable future as there is no indication that market conditions will improve ..." the builder wrote in its court filing.

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At first glance, a proposal to build 2,700 homes at the Briger tract along Interstate 95 sounds like folly. After all, Palm Beach County's housing market is glutted with unwanted homes. But on closer inspection, the Lester family's plans for the land just south of Donald Ross Road makes sense, housing analysts say. Approval of the massive project, which also calls for 4.5 million square feet of biotech and commercial space, will take months or years. The project represents the second phase of a biotech buildout for Scripps Research Institute, which will use more than 1 million square feet of space. By the time homes are built on the site, the housing market is likely to be healthier - and critically short on vacant lots, said Brad Hunter, a housing analyst at Metrostudy. "Even though we have an oversupply of homes, we have a shortage of lots," Hunter said. Palm Beach County's housing inventory includes 5,425 vacant lots, he said. Considering that builders started construction on only 1,600 homes in the past year, that's plenty for now.

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R. Donahue Peebles wants to wrest the Royal Palm hotel from a foreclosure fight and run it himself, regaining control of the Miami Beach resort he built at the start of the decade. A New York judge has control of the 417-room hotel as its primary owner, Coral Gables real estate investor Guy Mitchell, fends off lenders. Peebles sold the Royal Palm in 2004 to Mitchell and partners, including condo-hotel converter Robert Falor, but retained a 12 percent stake in the business. Lawyers for Peebles on Wednesday asked a Miami-Dade judge to remove the Mitchell entity running the hotel. The company is under the control of a New York court in an unrelated case. Retired judge Albert Rosenblatt has been hired to oversee Mitchell's assets -- including the company that runs the Royal Palm -- until the New York-based lender in a failed Chicago hotel project can collect a judgment against Mitchell and Falor.

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Despite a perception that industry along the Miami River is dead or dying, interest in commercial property along the river is high, brokers say. Hopefuls are eyeing the river, some envisioning open trade with Cuba, as they wait for prices to settle during the aftermath of the residential building boom. "The marine uses want to come back to the river," said John Rosser, president of boutique real estate firm John Paul Rosser & Associates. "There is a demand here — it's just an issue of cost." During the height of the boom, land prices along the river skyrocketed. Even recently, some have been upward of $4 million an acre, Mr. Rosser said. But "the prices have come down a little bit," he said, in part because would-be residential developers who grabbed up riverfront land with condos in mind have begun backing away from plans.

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Condo resales in the South Florida region and the state as whole increased by volume in May for the fourth consecutive month while median sales prices in the region fell slightly, according to a Condo Vultures® LLC analysis of industry data. South Florida experienced 1,714 closed resales of condominium units in May, up from 1,576 closings in April in Miami-Dade, Broward, and Palm Beach counties. In March, there were 1,536 resale condo closings, 1,132 in February, and an additional 1,012 closings in January, according to data from the Florida Association of Realtors.