By Daniel Walker Guido While its seems that national economic forecasts are mostly doom and gloom since Sept. 11, the housing industry still is underpinning the economy. Though nearly non-stop bad news engulfs them, many builders, like Northern Virginiabased NVR, are reporting record third-quarter profits. Back order inventories for many builders still remain strong. Sales have fluctuated and nearly every housing indicator was somewhat skewed in September. But as of October, things are once again looking up.

"We believe the market has recovered to its pre-attack levels," says John Stanley, home building analyst for Wall Street investment bank UBS Warburg, in a report issued October 17. The NAHB's Housing Market Index (HMI) dropped a dramatic eight points in October, but Stanley notes that the NAHB's report is a lagging indicator that has been "chronically too negative over the past year." Stanley maintains that "real-time builder inputs are more indicative of current market conditions." Stanley expects the November HMI will show most builders reporting orders recovering in October.

"Most builders large and small must have ramp down plans they can quickly implement if the economy worsens for whatever reason," says Ian Jacobs, home building analyst for the Wall Street investment bank Goldman Sachs. "If we endure a recession, many builders are in better shape now than they were during the last recession in the early 1990s. They are not too highly leveraged, they don't have a nine- or 10-month inventory of spec homes, like they did then, and they are mostly taking options on land if possible."

NAHB president Bruce Smith, while cautious about the short-term outlook, remains bullish on housing for the long run. "We will take a hit over the next several months, but the fundamentals of the market are sound," Smith notes. Interest rates are at very low levels and underlying demand is strong. Housing starts were ahead of expectations in September, increasing 4.4 percent from last year, for a seasonally adjusted rate of 1.574 million units. Many housing analysts had predicted 1.512 million units.

While NAHB chief economist David Seiders is concerned that cancellation rates could worsen, 70 percent of the builders surveyed in the current HMI survey report no such increase yet. With consumer confidence wavering, the economy weakening, and the stock market gyrating, 34 percent of the builders surveyed reported sales declines of more than 10 percent, while another 22 percent said sales fell between 5 percent and 10 percent.