(FORTUNE Magazine) – It's a great time to buy a house. Mortgage rates are the lowest since 1977. Prices in some regions are down from several years ago. There's a wide ! selection of homes for sale. So why are buyers lying low, and will their reluctance stymie the nascent economic recovery? The Federal Reserve reports that housing sales and starts in more than half its districts leveled off in recent months after the spring rebound. Even within states the patterns are spotty. Take Pennsylvania. A suburban Philadelphia real estate agent reports his worst August in 33 years. Farther north in the Lehigh Valley, sales are so-so. And in Erie, in the northwest, the market is good. Nationwide, sales of existing homes dropped in August for the second straight month, though they are still running at a fairly good 3.25 million annual rate. The weakness is worst in new-home sales and starts. They are down a lot from last year and far behind their levels in the early stages of the 1983 recovery, when mortgage rates and unemployment were far higher. But people then were starting to breathe a hopeful sigh of relief after a brutal recession. Today they are still worried. So far the recovery is a myth for many wage earners, as major companies continue to announce large layoffs. ''People are hesitant to move up when they're concerned about their jobs,'' notes Gary Jarrett, a real estate broker at Moore & Co. in Evergreen, near Denver. The soft market will keep a lid on construction in the near term as builders seek to pare inventory before digging many more foundations. Even if inventory is moving, builders face a big hurdle -- persuading wary lenders to loosen up. (For people who own homes now, that could be good news -- see box.) Nonetheless, FORTUNE forecasts that single-family starts will grow moderately to a little over one million at an annual rate by the fourth quarter of 1992. Key reasons: Houses are affordable for the majority despite recessionary weakness in income, and job growth will come as the economic recovery takes hold. Important to this outlook is continued brisk demand from so-called nontraditional buyers -- singles and unmarried couples. Without such buyers in all age categories, housing would be hurt as the baby-bust generation comes of home-buying age. The prognosis looks good. In California, nontraditionals bought 36% of existing homes sold last year, compared with 29% in 1985. Even in Pennsylvania, hardly a hotbed of alternative lifestyles, real estate agents are noticing more single buyers. Nationally, nonmarrieds bought 26% of all homes in 1990, up from 24% in 1989, according to Chicago Title & Trust Co.

Creative sales efforts will also help to revive the markets. At Boston's Showroom of Bank-Owned Real Estate, which opened in May, you can browse through some 3,000 listings while seated in front of a computer terminal, which spits out all the specs and financials and displays a color picture of what may be your dream house. Because banks are anxious to sell these properties, some feature zero closing costs (usually 5% of the house price). Elsewhere, builders are turning to auctions. Kennedy-Wilson Inc. of Santa Monica, California, says it will auction a record $750 million of residential real estate nationwide this year. Sellers reduce their inventories fast, and buyers can wind up with good deals. Low- and moderate-income people are getting help from the Federal National Mortgage Association (Fannie Mae), which earlier this year pledged $10 billion over three years -- double its previous commitment -- to an array of programs. The ''3/2 option,'' for example, allows buyers to pony up just 3% of the value of a property, relying on relatives, government agencies, or nonprofit organizations for another 2%. Though homes are more affordable in general, many would-be buyers -- especially those looking for the first time -- still cannot make the nut. That is one reason existing homes are doing so much better than new ones, which are usually more expensive.

Developers are responding. In California, Centex, the nation's biggest builder of single-family houses, is looking into every aspect of design and construction. It expects to cut costs 10% to 20%, says regional executive vice president Steven Muller. Paul Leonard, his counterpart in Charlotte, North Carolina, is shooting to build houses that will sell for $75,000 to $85,000, compared with the current offering that starts around $90,000. Says he: ''Everywhere in my region there is lots of activity at this lower price point, no matter how depressed the market is.'' Leonard plans to trim some standard features -- reducing ceiling heights from nine feet to eight, substituting conventional bathtubs for big ''garden tubs'' -- and make others such as garages optional. Altogether, such efforts aren't big enough to fling the door wide open to all comers. But they will help ensure that housing plays a role in the recovery. And they show how the industry is evolving to shore up the still strong American belief that though a house may not be a home, a home should indeed be a house.

BOX: OVERVIEW

-- Buyers will return as job fears ease. -- Cheaper financing will stoke demand. -- Singles and unmarried couples are becoming homeowners.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART CAPTION: TOTAL HOUSING STARTS CLEARING THE INVENTORY Sluggish sales are spurring innovations like Boston's Showroom of Bank-Owned Real Estate, where bargain hunters shop by computer.