CHICAGO – While discussions of the construction industry recently have produced plenty of long faces, not all economists believe that real estate is headed for a crash. For one thing, consumers are getting a high-octane boost in their wallets from a rapid descent of gasoline prices. Home heating costs have dropped from last year. And mortgage interest rates have leveled off at a five-month low.

Admittedly, home construction has slowed. In July, new construction was down 13.3 percent from a year earlier. And pressures will grow on builders as housing enters the traditionally slow cold weather months.

Get ready for more so-so news Tuesday, with housing starts for August. Chicago economist Paul Kasriel is looking for a drop of about 2 percent, to an annual rate of 1.75 million units.

“There is a tremendous excess supply of new houses, and prices are softening. That means builders appear to be in no big hurry to start on more of them,” said Kasriel, of Northern Trust Co.

The Midwest remains stronger than California or Florida, where speculative investors are being driven out of the market, he said.

“But there is weakness in the Midwest, too, as manufacturing jobs are being lost in Michigan, Ohio and Indiana, in particular,” he said. “The latest job cutbacks announced by Ford Motor Co. won’t help that situation.”

Fed likely to stay course

The Federal Reserve has allowed interest rates to drift since pushing them higher on June 29, the 17th move in less than two years, to a short-term benchmark of 5.25 percent. Don’t look for any action when central bank policymakers finish a meeting on Wednesday.

There are few predictions of any further tightening of credit until well after the November elections.

According to Chicago economist Paul Tannenbaum of LaSalle Bank, “it is likely that the Fed will buy some more time, and monitor the developments in the economy further, before acting again.”

Most analysts say the likelihood of another central bank move between now and the end of the year is less than 30 percent.

Rare September rally

For the stock market, the onset of autumn signals the start of spooky season, as investors flee their holdings on the slightest pretext. The air typically clears by late October, triggering a year-end rally.

Instead of a shudder, the market has begun September with a solid surge higher, taking stocks back to heights not seen since early May, said mutual fund manager Henry Van der Eb.

“The drop in oil has boosted the psychology of investors, setting off a bond rally that has meant lower long-term interest rates,” said Van der Eb, of the GAMCO Mathers Fund.

Looking ahead, he sees problems for consumers, who will be taking less money out of home equity. That is clouding the outlook for 2007.

Additionally, says Van der Eb, “one of these days we will see a recession for corporate profits.”