Home sales start hitting the ceiling.

In the midst of record home sales in 1999, real-estate agents wondered how it could get any better.

It couldn't. North Carolina's residential real-estate industry began to check itself in 2000, with the largest markets showing serious signs of softening. Bernard Helm, president of Market Opportunity

Helm's firm, which tracks real-estate in the four largest markets, says the first signs of softening started early in the third quarter of 1999 in Greensboro, when resales and permits for new homes began to fall. By the fourth quarter, the Triangle market began to dim. By the second quarter of 2000, Charlotte had started to feel the effects.

Last fall, new-home building permits in Raleigh were off 22.6% from the same time in 1999. Guilford County was off 24%. In those same larger markets, new-home closings were down 5%. Resales were down 3.5%.

Figures measuring the health of the state real-estate market were tempered by the North Carolina Association of Realtors, which tallies numbers from all 100 counties. According to the Multiple Listing Service, the number of homes sold was up 2% through August, with the average cost also up 2%. Just a year before, home sales had grown by 12%, with the average cost up 4%. Interest rates, which have gone up six times since June 1999, have slowed the market. Many homeowners who were going to take advantage of lower rates to move up to more-expensive homes did that in 1998 and 1999, when rates were at record lows. In October, 30-year mortgage rates averaged 7.8% nationwide. That's less than the peak of 8.6% in May but higher than the 6.9% available in May 1999.

With interest rates settling below 8% in late 2000 and no indication that the Federal Reserve Board would raise them soon, Tim Kent, executive director of North Carolina Association of Realtors, says agents were optimistic good times would continue. "There are a lot of market opportunities in the future as baby boomers turn 50 and trade up to their dream home or buy vacation homes. That represents 40 million households," Kent says. "If you take this in perspective, we are going to have a healthy market for some years to come."

Jim Wahlbrink, executive officer of Home Builders of Raleigh-Wake County, saw new-home sales fluctuate all year. "The builders can tell something's up when the [subcontractors] start knocking on their doors for work," Wahlbrink says. "Back in '96-97, contractors were paying bonuses to get subs to leave a job site and come work at their site."

Explosive growth in the Triangle and in Wilmington after Interstate 40 made the beach a two-hour trip from Raleigh fueled overbuilding of housing in both markets, Helm says. He expects Wilmington will have a harder time coping with its slowdown. Some developers have "unreal expectations" of how many permanent homes and vacation homes that city can support, he says.

Despite the cooling, Myra Zollinger, a real-estate agent with Coldwell Banker Realty Center in Chapel Hill and the 2000 president of the state association, says agents generally have been a contented group. Association membership climbed to about 24,000, up 3% from the previous year.

The outlook wasn't as optimistic for the manufactured-housing industry. Five plants closed, idling more than 1,000 workers. North Carolina is the country's sixth-largest builder of manufactured homes. The North Carolina Manufactured Housing Institute in Raleigh estimates production is down nearly 14% and expects the slump to continue into this summer. Analysts say there's a glut of housing because lenders have financed too many marginally qualified buyers who have defaulted on loans.

Along with a glut in manufactured housing is an overabundance of apartments. In March, Raleigh's apartment-vacancy rate hit a nine-year high at 8.1%, forcing many owners to offer incentives. Still, new projects were being developed, including a mix of 900 apartments, town homes and condominiums on Glenwood Avenue.

The changes in the market mean large home builders will have to work harder to find niches in their markets and expand that market share, Helm says. "The greatest concern among brokers is having to relearn how to sell again."

                         N.C. EMPLOYMENT AND WAGES
EMPLOYMENT                   1995   1997   1999
Agents and managers [*]    16,570 19,112 20,933
Operators and lessors       8,090  8,565  8,159
Developers and subdividers  3,696  4,236  4,291
TOTAL                      28,356 31,913 33,383
AVERAGE WEEKLY WAGE           1995    1997    1999
Agents and managers [*]    $459.91 $498.84 $545.34
Operators and lessors       372.60  442.27  502.23
Developers and subdividers  484.98  515.58  646.44
ALL GROUPS                  438.27  485.88  547.80
(*.)Includes title-insurance workers
Source: Employment Security Commission
                             NEW HOUSING COSTS
                 (average construction cost, single-family
                homes, cities issuing 100 or more permits)
MOST EXPENSIVE          LEAST EXPENSIVE
Charlotte      $204,595 Goldsboro       $48,229
Raleigh         196,167 Thomasville      60,770
Cary            176,856 Kannapolis       68,929
Salisbury       166,586 Monroe           76,600
Chapel Hill     162,168 Jacksonville     83,973
Hickory         150,181 Wilson           87,812
Durham          148,298 Greenville       91,740
Gastonia        142,090 Concord          94,212
Asheville       126,277 Sanford          94,686
Garner          126,124 Fayetteville     98,637
Source: N.C. Department of Labor, 1999
                         TOP CONSTRUCTION COUNTIES
                         (residential construction
                         authorized; in millions)
            SINGLE-FAMILY MULTIFAMILY  TOTAL [*]
Wake          $1,247.8     $284.4     $1,585.6
Mecklenburg    1,014.8      200.7      1,285.3
Guilford         369.2       53.7        436.4
Durham           262.1       51.6        325.5
New Hanover      243.2       38.7        311.1
Iredell          221.4       44.1        275.0
Union            243.6        8.6        257.5
Forsyth          204.6       19.4        242.8
Stanly           219.9        0.2        225.2
Cabarrus         166.3       49.2        222.7
(*.)Includes additions and alterations
Source: N.C. Department of Labor, 1999