A foreclosure sign hangs in front of a home in Miami.
A foreclosure sign hangs in front of a home in Miami. - 
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SCOTT JAGOW: Yesterday, shares of NovaStar Financial plunged 42 percent on the New York Stock Exchange. NovaStar is a company that offers mortgages to people with weak credit. NovaStar said it'll have little or no taxable income for the next few years. That's not good for business and it's another glaring sign about the housing market. Our economics correspondent Chris Farrell believes we still haven't hit bottom.

CHRIS FARRELL: The reason why we're not seeing a cascade in lower prices in home sales is low long-term interest rates. This is the big surprise. This is what is propping up the market to the extent that it is being propped up. You can get a fixed-rate mortgage, your classic, 30-year traditional fixed rate mortgage, for the same rate that you could in 2004. We're just starting to see the real problems in the housing market and those real problems are going to extend for a long period of time.

JAGOW: OK where are those real problems?

FARRELL: The sub-prime market. About 20 percent of all mortgages in 2005-2006 in that period of time were what we call sub-prime. And sub-prime simply means you had a bad credit rating, you were low-income, came up with all kinds of fancy ways so you too — you too! — can own your own home. You should be renting. You're not very credit-worthy. But we're gonna come up with interest-only mortgages, option arms, piggyback loans. Well guess what? Those loans are coming bad fast. NovaStar Financial is the latest of the sub-prime lenders to report a surprise fourth-quarter loss. And at least 20 sub-prime lenders have shut down or scaled back or, you know, have put themselves on the market to be sold. And this issue in the sub-prime market is going to continue because we've got a lot of these option arms and these adjustable-rate mortgages where the interest rate's going to ratchet up when they adjust and there's going to be more trouble.

JAGOW: Can that somehow spread to the rest of the market?

FARRELL: Yes it can. You start becoming more wary about lending and so you get less credit and this is an economy that moves on credit. And so it could spill over into the overall mortgage market or it could be expressing, not just in the home ownership market, but elsewhere in our economy. It's a genuine worry that cannot be dismissed. That is, lenders crack down, they'll go too far just as they went to far in lending and that will spill over into the overall economy.

JAGOW: Marketplace economics correspondent Chris Farrell.