The intense pain caused by the bursting of the housing bubble is beginning to ease. Really.

That may be hard to believe, given the rapid increase in mortgage foreclosures, big year-over-year declines in home prices and housing starts, and continuing write-downs in the value of mortgage-backed securities.

Yet a close look at the recent flow of housing data provides convincing evidence that the worst of the decline is over. Investors who are fleeing financial-institution stocks - including those of Fannie Mae and Freddie Mac - ought to think twice about the housing outlook.

Take sales of existing homes, which account for about 85 percent of all U.S. housing sales. They peaked at an annual rate of 7.25 million in the fall of 2005 and fell to 4.89 million in January. In May, the rate was 4.99 million.

The recent figures aren't a guarantee that such sales won't decline a bit more in coming months. Still, their relative stability probably indicates that home prices have dropped enough to encourage buyers to re-enter the market. And there's no reason to think the huge drop in sales since 2005 will be repeated.

Sales of new homes, like those of existing homes, have also moved sideways in the past couple of months. They might fall again, though probably not by very much. After all, they peaked at a 1.4 million annual rate in the summer of 2005 before dropping to a 512,000 rate in March, so a decline of that magnitude literally couldn't be repeated.

In other words, the worst is behind us.

The same is true about the drag of falling home construction on economic growth.

While single-family housing starts are still going down, a glance at a graph shows a smooth, flattening trajectory suggestive of a near-term bottoming. They are off 63 percent from a top at more than a 1.8 million rate early in 2006. How much farther can they fall?

Shrinking home construction clipped more than a percentage point from the increase in the gross domestic product in the fourth quarter of 2007 and the first quarter of this year. Partly as a result of housing woes, growth was limited to a 0.6 percent annual rate in the fourth quarter and 1 percent in the first.

The smaller monthly declines in new home construction point to a housing drag on GDP this spring about half as large as the previous two quarters. That's one reason second-quarter growth may exceed 2 percent. The Bureau of Economic Analysis will release its first estimate of second-quarter GDP on July 31.

Home prices are more problematic. The S&P/Case-Shiller index for 20 metropolitan areas was down 15.3 percent in the year ended in April, a record.

Keep in mind, though, that one factor in the price declines is that financial institutions are putting their foreclosed properties on the market at prices low enough to entice buyers. That's an unavoidable part of the process of cleaning up the mess left by a bursting bubble. In the short run, it creates the appearance of more bad news.

Almost 2.5 percent of U.S. homes were involved in the foreclosure process in the first quarter of this year, according to the Mortgage Bankers Association. About 19 percent of homeowners with subprime mortgages were behind on payments in the quarter. The delinquency rate for prime mortgages rose to 3.7 percent.

Here's the better news on home prices. The recent Case-Shiller monthly figures - which are probably more informative right now than year-over-year changes - show that prices in eight of the 20 metropolitan areas it surveys rose in April, and the index's overall April decline was 1.4 percent, compared with 2.2 percent the month before.

Karl Case, one of the creators of the index, said June 24 that there was some positive news in the latest figures.

"I'm beginning to hope that there are going to be some surprises in the next few months that would indicate we are at or near a bottom in probably a third to half the country," said Case, an economics professor at Wellesley College in Wellesley, Mass.

While the worst of the impact on the economy may be behind us, there's no reason to expect a rapid rebound in housing. With lending standards very tight and mortgage-interest rates rising, sales are likely to remain soft. Until the inventory of unsold new homes begins to be worked off, housing starts won't climb much either.

Still, as the saying goes, if you're in a hole, the first thing to do is stop digging. In the case of housing, we're ready to throw down the shovel.