Will builders keep on building new homes? That's a good question as homebuyers in some areas have to get on a waiting list, while in other areas, builders are offering generous incentives on completed homes.

New homes construction starts slowed by one percent in July, but are still on a healthy pace for builders to start construction on over two million homes this year. Yet, some economists worry that the population is only growing by about a million and a half households. Are we building too many new homes, and will they glut the market?

If we're overbuilding, it could be scary, as housing has the potential to harm the economy if it falters.

According to "The Housing Bubble Fact Sheet," a white paper produced by the Center for Economic and Policy Research, housing construction "is equal to approximately five percent of the gross domestic product." Dean Baker, co-director for the Center suggests that with home construction on record paces for the last several years, construction could fall back by as much as 40 percent as it did in the 1981-1982 recession -- a loss that would equal 2 percentage points of the gross domestic product.

Meanwhile, builders say they are building to demand. While housing starts slowed for July, building permits for single-family homes rose a record two percent to an annual rate of 1.7 million. The Commerce Department says home construction has been boosted by strong sales, rising incomes and appreciating home values.

Month-to-month swings in starts and permits data may not be meaningful, say experts. It's far better to look for trends to establish themselves over a period of several months.

If you look at housing starts over the last five months, they are below two million, which should make some housing bubble-blowers breathe a little easier. In addition, new houses are being snapped up by buyers at record rates. In 2004, buyers purchased 1.2 million new homes and are on fire to do the same in 2005.

In June, more new houses were sold than ever before in a single month, leaving new home inventories at about a four-month supply. In more balanced markets, housing can swell to as much as six months on hand without causing any worries. Currently, new homes are outpacing existing homes by a nose, selling about one week faster.

Homebuyers should feel somewhat safe for the time being in buying a new or existing home. As long as the pace of sales remains near historic lows as they are now, they will enjoy moderate to healthy appreciation.

The median price of new homes is about $214,800, 15 percent higher than last year. That's about the same rate of appreciation as existing homes have shown. Existing home prices are at $219,000, says the National Association of Realtors. Even though housing prices are projected to fall through the end of the year, homeowners should still enjoy 10 percent gains in valuations.

Last, but most welcome, was a slight drop in interest rates. It's the first time in six weeks mortgage interest rates have taken a breather -- and that's good news for both buyers and sellers.