NEW YORK — The upside to a housing slump is cheaper homes. But many prospective buyers don't see bargains yet, especially as stricter lending standards qualify only the cream of the credit crop.

While some markets like southern Florida, Las Vegas and the Central Valley of California have seen sharp declines in home prices — up to 20 percent by some measures — overall national statistics show a much less dramatic drop so far.

Home prices fell 0.4 percent nationally in the third quarter, according to the Office of Federal Housing Enterprise Oversight. That's the first decline after 50 straight quarters of appreciation averaging 1.62 percent per quarter. Las week, the U.S. Standard & Poor's/Case-Shiller home price index, another home price tracker, said prices dropped a record 6.7 percent in October from a year ago.

While the supply of unsold homes is at a record high and forecasts of further price depreciation and swelling inventories bode well for buyers, housing affordability still remains low. The decrease in housing prices has only begun to eat into the nearly 13 years of quarterly price gains.

The National Association of Home Builders said in November that only 42 percent of all homes sold in the third quarter were priced low enough to be affordable for families earning the national median income of $59,000. That's down from 61.5 percent in the third quarter of 2001, when incomes and, more importantly, home prices were lower during this decade's recession.

Colorado Springs, Colo., real estate agent Terry Shattuck said only those who need to move are motivated buyers these days.

"The apartment dwellers and those just looking for a change are holding back, either afraid to buy right now, or are waiting for prices to drop," he said. "Few are looking to upgrade until this whole thing shakes out."

Renters Italo and Alexandra Subbarao are biding their time in what they call a pricey Chicago market. They want to buy a two-bedroom condo close to Downtown by next summer, but are torn about what to do.

"If the prices came down a little bit more, we'd certainly be more apt to go for it without hesitation," said Italo, a physician. "But we know it's a significant investment. There is uncertainty in the market, and that gives us uncertainty."

Consumers, especially cautious ones who didn't buy during the boom, don't want to buy a house until they know the market's hit bottom, said Bernard Baumohl, managing director of the Economic Outlook Group based in Princeton, N.J.

"There's certainly no incentive to buy if in a month or two from now that same house will be cheaper," he said.

A TROUGH IN EARLY '09?

Most forecasters say that's a good bet. Moody's Economy.com and Banc of America Securities predict prices will tumble 15 percent from peak to trough, which they forecast won't occur until early 2009.

Inventories of unsold homes are at the highest levels since the post-World War II period, even though many national builders like Centex Corp., Pulte Homes Inc. and Hovnanian Enterprises Inc. have been holding special promotional sales with deep discounts to move inventory quickly.

A surge of foreclosures as monthly payments jump higher on adjustable-rate loans would add to this already ballooning supply, giving buyers more choice and more pricing power. Banc of America Securities estimates that $361 billion in loans to risky borrowers are scheduled to reset next year.

Foreclosed homes typically sell at a 20 percent discount to comparable properties, and a high concentration of them in a neighborhood pressures other home sellers to drop their prices.

Baumohl also said potential home buyers are holding back over concerns about the economy and their financial security. Consumer confidence — which he characterizes as a leading indicator of spending on expensive items like cars and houses — edged up in December after being at its lowest level since hurricanes Katrina and Rita in October 2005.

By the final week of December, holiday sales appeared to fall short of modest growth expectations.

"Clearly a negative psychology pervades consumers, which has hurt home buying," Baumohl said.

Even for home shoppers willing to buy now, stricter mortgage requirements have made it harder for many to qualify for loans. Many national lenders and banks like Wells Fargo & Co. and Washington Mutual Inc. have scaled back their mortgage lending to borrowers with questionable credit because they know they won't be able to resell the paper to Wall Street firms and others in the securitization market.

"Housing affordability has changed in dramatically different ways for different borrowers," said Douglas Elmendorf, an economist at the Brookings Institution.

"The change in affordability depends crucially on your credit history, how big a house you want to buy, and where you want to buy it," he said. "The first two points are more important now than they have ever been in the past."

For example, interest rates on so-called jumbo mortgages — home loans for more than $417,000 — are slightly higher than six months ago. Because Freddie Mac and Fannie Mae don't buy mortgages with loan amounts that high, lenders are wary of originating them, worried no investor will buy them.

Interest rates on mortgages to consumers with spotty credit are sharply higher these days as delinquencies and foreclosures on these loans have skyrocketed, scaring off both lenders and investors.

For many borrowers, exotic subprime loans featuring adjustable rates, interest-only payments or short-term teaser rates were viewed as the only way they could afford to get into the housing market. But soaring monthly payments have led many to default, and most lenders no longer offer these types of mortgages.

"It will be more difficult for people with poor credit histories to get mortgages in the next five years," Elmendorf said.

QUALIFIED CAN BORROW

But market conditions are looking better for buyers with better credit scores and the cash for hefty down payments. For them, interest rates on conforming, prime 30-year fixed rate mortgages are the lowest in six months and lower home prices are available in most areas of the country.

Mortgage giant Freddie Mac reported Thursday that interest rates on 30-year, fixed-rate mortgages averaged 6.17 percent in the week ending Dec. 27, down from 6.74 percent in the middle of June.

Ben Pedraza took advantage of the current mortgage market and seller's desperation to snag a four-bedroom brick home in Duncanville, Texas. He paid $30,000 less than the asking price on the house, which sits on a half-acre wooded lot and features granite countertops, a hot tub and a six-person cedar sauna.

With a credit score around 785 and a steady job as a network administrator for an engineering company, the 33-year-old qualified for a 30-year fixed rate loan from Coldwell Banker with only 3 percent down on the $235,000 brick home. He moved in last month.

Pedraza plans to live in the house for at least 10 years, growing into a home that is more than he needs now. He thinks he'll ride out the current housing downturn and, when he finally wants to sell, the timing will be right.

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