The National Association of Home Builders is predicting rising interest rates to spur a drop in home-price appreciation and housing starts to more sustainable levels, the trade group said in a report.

While the housing market is experiencing a gradual cooling process at the national level, some states continue to show growth, according to the report, which provides a regional look at the economy and housing sector and state-by-state forecasts.

“We are coming off a very strong couple of years for the housing industry and markets are now starting to cool to more sustainable levels,” said David Seiders, chief economist of NAHB. “Each market has different factors that affect its local economy and housing market, but overall we are forecasting an orderly slowdown in housing starts.”

The report examines the performance of the local economy of each state, measured partly by employment figures. The Bureau of Labor Statistics reports strong job gains in many of the fastest-growing states, with 37 states exceeding their pre-recession peak levels of employment in 2005.

As a result of Hurricane Katrina, Louisiana fell significantly below its pre-recession peak, having lost more than 200,000 jobs. In addition to Louisiana, the states with the largest gaps to overcome include Illinois, Massachusetts, Michigan and Ohio. The economic outlook for both the South and the West is bright, as they will continue to build upon their industry sector strengths. California, however, faces the problem of high housing prices and an overall high cost of living. These will act as a drag on the overall positive outlook for the state.

Nationally, housing prices increased by 13.2 percent in 2005, with the strongest gains primarily in states along the East and West coasts. Much slower price increases are forecast nationally in both 2006 and 2007.

While housing starts are expected to decline nationally, Idaho, North Carolina, Oklahoma, Washington and Wyoming are all expected to see their total starts increase in 2006.

The effects of the 2005 hurricane season are still being felt in several states. As a neighboring state to storm-damaged areas, Texas received a large influx of evacuees. This will spur multifamily housing starts in 2006 and an even bigger jump in construction activity in 2007. While the rebuilding and repair process is proceeding slowly in Louisiana and Mississippi, the pace is expected to pick up in 2007.

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Send tips or a Letter to the Editor to jessica@inman.com or call (510) 658-9252, ext. 133.

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