Homebuilder confidence sank to two-year lows recently, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), confirming Realty Times' projection that housing will likely pause for a breather.

Among the reasons cited for the decline were uncertainties in a post-Katrina economy, rising interest rates, higher gas prices, and some buyer resistance to strong house-price appreciations. Some buyers are worried that they are buying at the top of the market and won't be able to sell when they need to.

In August, the Census Bureau report showed that housing starts fell to a 2.01 million annual pace from the 2.04 million rate set in July, still well ahead of 2004's 1.95 million units. Building permits for single-family homes dropped 1.3 percent to a 1.668 million pace.

Seasonal slowdowns aside, the costs of doing business is going up for builders, many of whom do business in the suburbs. They're starting to report lot shortgages in some areas, as well as higher impact fees which are assessed to provide roads and utilities to new communities. The builders say consumers are also beginning to think twice about moving far away from epicenters, as gas prices climb to new highs.

This situation could produce a countertrend, affording city leaders the opportunity to woo builders and homebuyers back to the inner city with incentives so the urban landscape can be renewed.

The interruption of supplies and materials by Hurricanes Katrina and Rita is also impacting many areas of the country where homes are under construction or being remodeled. Homebuilding supply centers have been known to ration such supplies as plyboard to customers, in case more is needed on the East coast as hurricane season draws to a close. Some reports suggest that consumers may be hoarding supplies.

Any cooling of the housing industry has economists worried, especially if builders start cancelling starts, as the housing industry accounts for approximately 16 percent of the gross domestic product.

The hottest homebuilding markets are concentrated in California, Florida and Texas, not nationwide. According to Standard and Poor, low mortgage rates and lending standards have driven home-ownership levels to record highs of nearly 70 percent. But, most price appreciation is concentrated in California, Florida and the Northeast. For example, on both coasts, housing costs have risen at least 30 percent above the normal home price-to-income ratio.

But despite regional differences, S & P Chief Economist David Wyss predicts that it would take a 30 percent decline in national home prices, combined with a 50 percent drop off in new home starts to drive the economy into a recession.