Lower interest rates raise builders' hopes.

• Position: Residential construction and real estate development - Industry Overview

Thirty-six years after Ann and Charles Smith left the state, they came home. "We were originally from Durham," says Ann Smith, whose husband was a KPMG Peat Marwick executive. "When he retired, we saw Treyburn and knew this was the lifestyle we wanted. There's always something to do - golf, tennis, a nice clubhouse, swimming."

North Carolina's residential real-estate industry dozed through most of 1995. But older, affluent customers such as the Smiths, who spent more than $1 million to build their French country home, gave builders and real-estate agents some sweet dreams.

Otherwise, a point-and-a-half spike in interest rates early in the year chilled single-family home construction. But apartment construction continued at an almost frantic pace. In Charlotte, where vacancies dipped to 3.1%, a record 4,600 multifamily units were under way by fall. In Buncombe County, the 128 permits filed through June were the most since 1987. In the Raleigh-Durham area, says Mike Rakouskas, a Raleigh chamber executive, "we've got a phenomenal number - more than 7,000 units - planned or under construction."

It was slow elsewhere, though, and through September, residential construction (including new houses, additions and apartments) was $3.2 billion, only 2.9% ahead of 1994's pace, according to the N.C. Department of Labor. Existing-home sales were about 2% shy of 1994 levels. James Bichsel, the Greensboro-based executive vice president of the 19,000-member North Carolina Association of Realtors, says the $131,533 average price was down slightly from $132,770 the year before.

Some things stayed the same. Raleigh-Durham and Charlotte were hot. Raleigh trailed only Las Vegas on U.S. House Market's "Market Hotness" index, which ranks cities by new houses per capita. Raleigh's count was 14 per 1,000; Charlotte's, 10.6; and Greensboro's, 7.1.

"It's certainly not gloom and doom," says analyst Bernard Helm, whose Rocky Mount-based Market Opportunity Research Enterprises studies the state's 13 largest residential markets. "But the year has been basically directionless." One reason for 1995's lackluster single-family home numbers was the rebound effect. Residential construction reached its post-recession peak in late 1994, he says. "Since then, we've been drifting."

Other factors were at play too, says Ken Mitchell, executive vice president of the North Carolina Homebuilders Association, which has 13,600 members. In early 1995, interest rates climbed to 9% or higher...