There is light still shining in the subprime darkness. If we look at our breadbasket- smaller cities-there is evidence that suggests the real estate market is holding up, if not improving. Prices in the smaller towns never boomed as high or as fast as our large metropolitan markets, and these are the areas that are resisting the widespread decline. According to Robert Shiller, economist at Yale University, many of these submarkets are far from being subprime. Cities like Grand Forks, N.D. and Austin, Texas, are experiencing normal growth and remain relatively off the bubble radar. To support this, figures released in the first quarter of 2008 by the National Association of Realtors reported that median home prices were falling in 77 markets and rising in 73 of 150 markets. Will this upward trend continue with a sustainable stride? No one really knows, but for now, housing in small markets is beating the subprime debacle.

Many experts believe medium-to-small sized cities, particularly where land availability and cost are not a constraint on growth, have been performing better than the nation's troubled regions. This is due in large part to the fact that these medium-small cities have more closely followed traditional patterns of economic expansion. In most of these markets, new housing prices more accurately reflect the labor and material costs, thus keeping profit margins normal; there isn't an inflation of purchase price. The result has produced a pattern: where you did not witness much price appreciation, those markets are not having price corrections.

Taking the good with the bad. Falling mortgage rates could actually be a catalyst for some markets to reverse themselves should a recession take hold. In the markets that have remained buoyant, owners are not selling their property and therefore prices are not going down. The caution is that while the market continues to slow, some smaller cities might see declines as well.

ROY R. PACHECANO operates at development/investment firm based in New York City. He lectures at Pratt Institute on real property: zoning/land use and real estate development.

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