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 Research Enterprises in Rocky Mount and an analyst who had been warning of a slowdown for three years, says the bubble finally burst. "Our real-estate markets are still really very strong. But they had grown so much over the last few years, everyone knew we couldn't sustain it."

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...