It's been a difficult week (Aug. 13-19, 2006) to be in the real estate business, at least as far as industry news is concerned. Sources say visitor traffic in new homes is off, home prices have stopped climbing like they did a year ago, and housing starts are tumbling.

Trouble is, the week's only half over!

The National Association of Home Builders said Tuesday (Aug. 15, 2006) that fewer people were looking at new homes. NAHB measures the traffic of prospective buyers who troupe through model homes built by its members. It reported its prospect index was down by 6 points in July, the steepest decline during any month this year. The index slid to 21; any reading below 50 means more builders view sales conditions as poor rather than good.

Real estate speculators account for a portion of the decline, according to NAHB chief economist David Seiders. Builder inventories are bloated due in part to investors who flocked to the market in recent years, but then abandoned their bets in droves to avoid big financial losses.

Speculators anticipated home prices would keep skyrocketing, which didn't happen. Appreciation in existing single-family home prices cooled to single digit rates in most metropolitan areas during this year's second quarter, according to the latest survey released Tuesday by National Association of Realtors®.

David Lereah, NAR's chief economist, said in a press release that a market transition is apparent. "With more sellers competing for the pool of buyers, the pressure on home prices has evaporated in most metro areas," he said. After a full year of double-digit gains in the national median price of a home, Lereah noted, there's cooling in the rate of growth.

Not surprisingly, then, the U.S. Commerce Department today (Aug. 16, 2006) said housing starts fell 2.5 percent in July, the slowest rate of starts since May 2003. The agency said it expected 1.795 million housing units to be built this year, about 150,000 fewer than it estimated only a month ago. Home buyers are "adopting a 'wait-and-see' attitude because of uncertainty about where the housing market is headed," Seiders acknowledged.

In addition, economic analysts suggested that rental housing costs may rise as home construction slows. "You're getting a lot of rental price gains and that's going to continue as long as the housing market is soft," Joseph Lavorgna, senior economist at Deutsche Bank Securities in New York, told Reuters News Service.

The decline in housing starts is more evidence of a slowing economy, but that's the silver lining in this otherwise dark cloud of disheartening news items. If the economy cools, and inflation is shown to be under control, the Federal Reserve is likely to keep interest rates steady. "This will certainly add fuel to the idea that the Fed will stop raising rates, because the housing industry is rapidly getting more weak," Michael Metz, chief investment strategist for Oppenheimer & Co. in New York, also told Reuters.