In the Puget Sound region, housing inventories are up sharply from a year ago, including in King County, where the number of houses on the market increased 38 percent. Meanwhile, sales in the region have fallen 20 percent. Few investors today are rushing to place bids on new condos in hopes of making a quick killing. And Standard & Poor's, the credit-rating agency, has announced it may downgrade King County's debt rating because the county's investments include complex securities that are falling in value because of the national housing crisis.

Those are just a few of the signs of economic distress that are beginning to darken the region's once rosy future. But don't panic yet. Local real estate agents, economists and investors say strong growth in jobs and personal income, continued migration into the region and a shortage of land on which to build have thrown up a bulwark against the market turmoil.

"Because of the solid economy and net in-migration, you're not going to see the big excesses [that you see elsewhere in the country] in terms of over-leveraging," says Scott Anderson, vice president and senior economist for Wells Fargo & Co. Since the housing boom started later in Seattle and the Pacific Northwest, Anderson says, local lenders managed to avoid the worst excesses of other markets.

Even Bill Fleckenstein, a contrarian Seattle hedge fund manager, is surprisingly optimistic about the region's prospects. In January, when most analysts were predicting uninterrupted growth in Washington state, Fleckenstein, president of Fleckenstein Capital, publicly pointed to a dangerous "lending bubble" that allowed "anybody with a pulse" to borrow money.

At the time, Fleckenstein argued that the region's housing market was almost as risky as that of the rest of the country. Though he remains skeptical, Fleckenstein now thinks the region's prospects are actually better relative to other regions of the country. That's because of strong employment growth led by Microsoft Corp. and Boeing Co. Unlike borrowers in Florida, California, Nevada, Michigan and other states where speculation was rampant, Fleckenstein argues that many local residents will be able to continue to make payments.

Ironically, regulations that have frustrated developers in the past may now be helping them. Todd Britsch, president of Mill Creekbased New Home Trends, says the state's anti-sprawl Growth Management Act has protected the region from creating an oversupply of housing. "We only have a certain area we're allowed to build," he says.

There are other positive signs. Housing starts in Washington remain higher than in the nation as a whole, while office construction is booming, driven by some of the lowest vacancy rates in the nation. "We've got Microsoft taking on gulps of office space," says Matthew Gardner, a Seattle land-use economist who works with developers. Microsoft is leasing new space in downtown Bellevue and Seattle while continuing to expand its Redmond campus. Other prominent companies like Yahoo, Google, Amazon and Starbucks are planning to lease millions of square feet of additional office space.

Although the region's home foreclosure rate, spurred by the fallout from the subprime mess, has increased, experts note that it's much better than other areas. For example, RealtyTrac ranked the Seattle area foreclosure rate 160th out of 229 metropolitan areas in August, during the summer subprime meltdown, which was an improvement from 133rd in July. Gardner notes the region had only 251 foreclosures in the third quarter of 2007, compared to 5,320 in the Los Angeles area and 1,031 in Miami.

And consumer confidence, though it has begun to decline, is better in Washington than in other West Coast states. "Our labor market is better than in California's," says Evelina Tainer, chief economist for the Washington State Employment Security Department.