Builders try to keep a roof on home prices.

Home construction continued at a rapid pace in 1997 after a frenzied '96, when North Carolina had $6.4 billion in new and refurbished residential construction. But after several years of rapidly rising prices, buyers suffered sticker shock. Many turned toward the resale market, driving up those prices in regions such as the Triangle and the Charlotte area, while builders were forced to look for ways to trim price tags for new homes.

"This is no longer a situation where, if you build it, they will come," says Bernard Helm, president of Market Opportunity Research Enterprises. The Rocky Mount-based real-estate research company tracks single-family homes.

Apartments are an even more vulnerable sector of residential construction, with builders starting or planning thousands of new units around the state. Cary-based Karnes Research Co. sees signs of overbuilding in the three metropolitan markets it tracks - the Triangle, Triad and Charlotte. In the Raleigh-Durham metro area, for example, Karnes estimates more than 3,000 units were under construction in the fall and 5,000 more were proposed. If those units get built, Karnes foresees the vacancy rate rising from 5.2% in May to 7%-9% in early 1998.

In new-home construction, the segment that has seen the most action and possibly a glut is at the higher end, homes that sell at $200,000 and more. "Everybody is trying to capture that market," says Robert L. Fowler, president of the North Carolina Association of Realtors. "I think they are overbuilding. It is sort of like the apartment business. We build every 10 years, then take 10 years to fill them up."

Builders of midpriced and entry-level homes found they were dealing with much more cost-conscious buyers in 1997. To offset rising prices for land and materials, builders scaled down their offerings. They built smaller houses on smaller lots and scaled back on the amenities they put in them. To get more house for their dollar, metro buyers had to drive farther into the 'burbs.

Fortis Homes, a King-based home-builder that works in the Triad, Triangle and Charlotte, is typical. After its best year ever in 1996, when it sold 738 single-family homes, it saw a modest decline in 1997. It found that the magic price for homes was $175,000 and that prices above that met buyer resistance.

To keep the ceiling and make a profit, Fortis cut corners. It started going to concrete slabs instead of crawl-space foundations, eliminated microwaves as standard features and used cheaper door handles, windows and ceiling treatments. The trick, the company has found, is to take away things buyers won't miss and to add something extra they'll notice right away, such as sod in the front yard.

"What we try to do is focus on who our buyers are and appeal to them," Fortis marketing director Rick Bell says. "What are they willing to pay more for? What are their tradeoffs?" He expects a modest slowing of the market for the next year or two, with little price escalation.

Helm's research indicates builders have put the brakes on prices. In the six-county Triangle market, for instance, the average price of a new home during the first six months of 1997 dropped to $174,297 from $175,512 for the same period in 1996.

The scale of new homes also reflects the new temperance. In Wake County, the average new home shrank to 2,535 square feet for the year that ended in June. That's down from 2,628 square feet a year before.

In most cities around the state, resale prices remain considerably lower than for new homes. That can lead to lower demand for builders. The problem typically doesn't last long because buyers quickly bid up resale prices to within $20,000 to $25,000 of new-home prices. In Wake, the price differential has already fallen back within that range after peaking at $39,200 in 1994, according to Helm.

Everyone is keeping a close watch on the Federal Reserve for any sign of interest-rate increases. "If rates will stay low, that helps the housing market tremendously," Fowler says. "We are glad to take slow, steady growth over no growth any time."

RESIDENTIAL REAL ESTATE

EMPLOYMENT AND WAGES

EMPLOYMENT                       1992       1994       1996

Agents and managers(*)         14,506     16,687     17,899
Operators and lessors           6,255      6,899      8,162
Developers and subdividers      3,678      3,955      3,928
TOTAL                          24,439     27,541     29,989

AVERAGE WEEKLY WAGES             1992       1994       1996

Agents and managers(*)        $395.65    $440.50    $482.78
Operators and lessors          321.55     350.12     402.54
Developers and subdividers     426.32     469.57     503.86

AVERAGE                        381.30     422.03     463.70

* includes title-insurance workers

Source: Employment Security Commission