By Boyce Thompson The housing industry has weathered all sorts of economic storms in recent years--the dot-com meltdown, a series of interest rate increases two years ago, and negative growth in manufacturing for much of this year. Housing has been the pride of the U.S. economy, continuing to produce new jobs and new places to live.

But now the industry faces the biggest economic challenge of all. Terrorist attacks on the World Trade Center, along with the threat of more to come, coupled with layoffs in the airline, hotel, and entertainment industries, have changed consumer psychology--maybe permanently. In early October, economists speculated that the economy had slipped into recession.

Few new homes were bought during the middle of September, as would be fully expected. People were too glued to their televisions and too worried about their prospects to venture out to models. How could you even think of yourself and improving your habitat at a time like that?

Even so, many sales that were already in the pipeline went through during the week of Sept. 11th, according to several attendees at our TeamBuilder conference, held two weeks after the attack. Buyers had decided to purchase months before. Maybe their existing home was already on the market. Maybe they had to take a new job in another city next year. They weren't going to back out now.

Public builders reported that September orders were down from 15 percent to 20 percent over the previous year. But they also said that activity picked up noticeably by the end of the month, just as it did in the airline industry. The Ryland Group sold more homes during the last week of September than it did in the same week in 2000. Lower mortgage interest rates, expected to fall to 6.5 percent in the fourth quarter, certainly helped matters.

The public builders aren't too worried about the fallout because large backlogs--on the order of six months--should take them easily through the early part of next year. Considering that these builders account for one out of every five homes built in the country, they will provide a strong industry foundation.

The other encouraging factor is the great job the industry has done to reduce speculative inventory. Though many of the biggest builders were caught with an excess of spec houses in the pipeline for year-end relo buyers, the industry as a whole is down to a two-month's supply. Many builders, who have fretted about a slowdown for a couple of years, worked down their land inventory and took a cautious approach to speculative building.

That said, we're going to be dealing with a new level of consumer anxiety in the coming months. Many prospects will no doubt delay plans to buy homes until "things settle down." Others will negotiate harder on price, particularly as builders compete to sell inventory before year-end. Some buyers may question the premium that new homes carry over existing homes. I hope your salespeople are prepared.

The NAHB expects starts to slip 13 percent in the fourth quarter from pre-attack levels. But as 2002 progresses, chief economist Dave Seiders expects activity to return to pre-attack levels. He believes the 137,000 housing starts "lost" to the situation will be made up in 2003 or beyond.

Demand, in other words, isn't going to disappear. But dreams will be delayed. In this environment, as always, a great home, built in a desirable location, and priced competitively is going to sell, and sell well. It's time to refocus on the fundamentals.