SOUTH BEND — A new national report shows sales of existing homes have dropped by nearly 16 percent from this time last year. But new home construction is on the rise. Some say that's a positive sign that new growth could be on the horizon.

Building permits across the United States are down 35 percent from this time last year. The number of building permits issued in St. Joseph County is down even more -- 66 percent lower than last year, according to the National Association of Homebuilders.

But new home sales are up by nearly 200,000 units nationwide over the last 12 months. Some say it's a harbinger of things to come, especially after new home construction dropped to its lowest level in 12 years in 2007.

"Nationally, new building is down 24 percent," said Craig Taelman, a member of the Home Builders Association of St. Joseph Valley, and local developer with Signature Homes. "But in St. Joseph County, we're only down 4.5 percent versus last year."

And Taelman says there's a simple reason why.

"Home prices here have been pretty stable," he said. "And therefore we didn't have as much to drop once the market fell out."

But that's not the only reason why he's optimistic about a turnaround for his industry.

Lumber prices have dropped by more than 30 percent over the last two years, to a new low of $262 per 1000 board feet of wood. Taelman says that's giving home buyers more house for their buck.

"The decrease in lumber price has more than offset the increases in copper and concrete and those types of materials," he said. "That allows us to build better homes for less money."

It's one reason why his custom home building and lumber business hasn't seen a marked drop off in their bottom line. Other builders have had to layoff portions of their workforce in order to stay profitable.

But it's not just home builders sharing in this newfound sense of optimism. Local Realtors say they're seeing more consistent numbers too, though there's no denying the industry is still struggling.

"Our average price is only down 4 percent, and our median price is down 6," said Greater South Bend/Mishawaka Association of Realtors President Mike Rans.

Right now, that's not much better than the national rate. The average home price in the United States in May 2008 was $253,100, down 6.5 percent over the last 12 months. The Median price in May 2008 was down 6.3 percent to $208,600.

But both local and national existing home sales rose by about 2 percent in May 2008. In the Midwest, sales rose by 5.5 percent.

Still, nationally, existing home sales are still down 15.9 percent, and combined with a sluggish economy and rising fears about rising gas and grocery prices, Rans says buyers have shown more caution.

"It does affects us. It affects buyers. It affects sellers. It even affects renters. But we've just never been an area that sees big surges or declines," he said.

It one reason, he says, that St. Joseph County's 8.4 percent drop in existing home sales last year was far lower than the 12.7 percent drop recorded nationwide.

An independent real estate market forecasting group called "Housing Predictor" recently released a study predicting the South Bend housing market would face a 7.9 percent decline in existing home sales in 2008.

Rans says that's certainly possible if sales don't increase within the next quarter, but it hasn't stopped optimism over a faster rebound, or confidence that the local housing market has weathered the housing slump so far.

"Our market is down, certainly," said Rans. "But there are positives. I don't see any big dips in St. Joe County, real estate wise. I don't see us jumping, or having a big boom either. We're just going to just kind of plod along."

Even so, industry experts caution, the market won't turn around overnight. More layoffs are projected throughout the industry, as the lingering effects of America's mortgage meltdown and credit crunch continue. The National Association of Home Builders says borrows caught up in the nation's sub-prime mortgage crisis now account for about 10 percent of Indiana's housing market.

But as the sounds of progress gradually return to subdivisions across the area, it's clear confidence appears to be building that more busy days lie ahead. Both Taelman and Rans are also quick to point out the the drop in median home prices and low interest rates have continued to fuel a strong buyers market.

Rans says a long term rebound of the entire housing market could take between 2 and 5 years. But Taelman thinks housing starts could pick up even faster.

"We're seeing next year as a turn around year," said Taelman. "I think you'll actually start to see some increases instead of those small decreases we've seen here in St. Joe County."