A dramatic drop in home sales and a continuing buildup of inventory are the latest signs that, at the national level at least, housing is poised for a slowdown in 2006 -- a slowdown that could constrict an economy that has been growing at a nice clip.

		Graphic: U.S. housing sales, starts: 2004-2005

After a five-year boom that many deemed a bubble and that even outgoing Federal Reserve chair Alan Greenspan described in terms of froth, sales of new homes plunged in November by the largest amount in nearly 12 years, according to a Commerce Department report released last week. The report said new single-family homes were sold at a seasonally adjusted annual rate of 1.245 million units last month, a drop of 11.3 percent from October, when sales had surged to an all-time high.

It was the latest sign of a slowdown that many had been predicting and that, at least in pockets, had gradually been emerging in the year's second half. During the summer, for examples, sales and prices in some of the nation's hottest markets, such as Washington, D.C., and Los Angeles, began to cool, with properties sitting on the market for weeks rather than being sold within days.

And while home sales nationwide rose strongly in October after declining in both August and September, many saw the spike as a sort of last hurrah for a housing market that had been fueled by the lowest mortgage rates in a generation -- a condition that began to change by mid-summer, with rates jumping on adjustable and other short-term mortgage loans and even start to head up on more conventional 15- and 30-year loans.

"We're fairly confident that third-quarter home sales will prove to be the high point of the five-year housing boom,'' David Lereah, chief economist for the National Association of Realtors, said following the October report. November's drop-off in home sales -- the 8.7 percent plunge was even larger than Wall Street analysts expected -- appeared to drive home his point.

Still, slower sales don't yet seem to be stopping builders from doing what they do. Housing starts last month soared a seasonally adjusted annual rate of 2.12 million, a 5.3 percent increase over the revised October estimate and 17.4 percent above the November 2004 rate of 1.81 million.

But home builders, if not worrying, are starting to become a little concerned. The National Association of Home Builders, in conjunction with lender Wells Fargo, said its most recent survey of home builders on market conditions and expectations showed a decline in confidence as builders faced rising costs and a growing reluctance among buyers.

The rising costs, for both energy and materials, are part of the continuing impact of hurricanes Katrina and Rita. And buyer reluctance appears to be driven by steadily rising mortgage rates, which is putting the cost of new homes out of reach of some buyers and making others reluctant to take on new debt.

While sales of both new and existing homes are still on track to set records for a fifth straight year in 2005, analysts are forecasting sales will decline about 6 percent next year. Some economists compare the coming slowdown to the bursting of the stock market bubble in early 2000, but most believe that housing is unlikely to exhibit the same collapse, in part because the overall economy appears to be on solid ground.

Moreover, while some of the nation's hottest real estate markets could see significant price declines, a single and uniformly calamitous drop in home prices everywhere is unlikely. The greater danger to the overall economy may be a slowdown in refinancings, which according to Goldman Sachs, provided 7.4 percent of personal disposable income in 2004 -- income which has helped to drive consumer spending.

As for Pittsburgh, the local outlook is not as dramatic as in such markets as Los Angeles or Fort Lauderdale, Fla., said Nick Buss, an economist with the PNC Financial Services Group. "There was never a bubble to burst, so if there is any decline, it is likely to be slight. However, the greater likelihood is that homes in Pittsburgh will appreciate over the next year."