CHICAGO – Talk of a housing bubble, or at least a slowdown, is in the air constantly, even though construction and sales remain near record levels. The most pessimistic analysts expect sales to drop by 12 percent this year, although many believe the market decline will be only half that much.

Get ready for fresh assessments Wednesday and Thursday, with April new single-family home sales and resales of existing homes, respectively. Most analysts are looking for a modest downtick in both numbers, from strong levels.

Last week’s report that housing starts fell 7.4 percent in April, the third monthly drop in a row, set off alarm bells. Chicago economist Paul Kasriel says the drop in the home construction industry will be steeper than many people expect.

“Consumer confidence has fallen rapidly, to levels last seen after the 9/11 attacks in 2001,” said Kasriel, of Northern Trust Co.

His biggest worry: Home buyers who hold adjustable mortgages must find a way to refinance upwards of $2 trillion in debt in 2006 and 2007, presumably at higher rates.

If prices for real estate weaken further, Kasriel says, it will dampen consumer spending and have far-reaching negative effects on the economy.

Durable outlook

Worth tabbing on Wednesday will be April orders for durable goods, which have been leapfrogging forward. In March, they got a skyward boost from Chicago-based Boeing Co., as airliner orders in the report jumped by more than 71 percent. The auto industry also saw a solid gain, as orders for capital equipment strengthened.

The downside for the manufacturing boom has been weak employment gains. While productivity in factories has gone through the moon, the number of workers added to payrolls has been meager.

Adage holds true

That ugly old stock market maxim, “sell in May and go away” seems to have some validity in 2006, as Wall Street has gone nowhere but down in the last three weeks. The Dow Jones industrial average is off more than 500 points since May 10, when it brushed within 75 points of an all-time peak.

A drop in the dollar against foreign currencies has unsettled investors, says Bannockburn-based investment manager Henry Van der Eb of the GAMCO Mathers Fund. The dollar last week fell to an eight-month low against the Japanese yen and traded near a one-year low versus the euro.

The biggest danger facing Wall Street is a potential implosion in markets overseas, Van der Eb said.

Because interest rates in emerging countries are too closely matched to rates in this country, “a selling panic in emerging market debt and global markets, similar to the meltdown that occurred in the summer of 1998, could start at any time,” Van der Eb said.

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