Home Construction Drops 14.6% in October

Decline Is Sharpest in More Than 6 Years; Building Permit Applications Also Fall

In this June 22, 2006, file photo, workers toil on the roof of a new home being constructed in a development by DR Horton in the north Denver suburb of Thornton, Colo. The Commerce Department reported on Friday that construction of new single-family homes and apartments dropped to an annual rate of 1.486 million units last month, down a sharp 14.6 percent from the September level. (AP Photo/David Zalubowski) (David Zalubowski - AP)

U.S. home construction plunged in October to its lowest level in more than six years, according to government data, sending a chill through the slumping housing market.

The Commerce Department reported yesterday that construction of houses and apartments dropped to an annual rate of 1.486 million units last month, down 14.6 percent from the September level.

The sharpest drop came in the South, where construction fell by 26.4 percent. The Washington area is included in the southern region.

Construction was down 11.7 percent in the Midwest and 2.1 percent in the West. The only region to show gains was the Northeast, where construction grew by 31 percent.

Earlier this week, National Association of Home Builders President David L. Pressly Jr. asserted that the market had stabilized and was poised to move upward. "More and more builders are seeing light at the end of the tunnel," Pressly said in a statement.

The association's chief economist, David Seiders, suggested yesterday that there is still plenty of darkness in that tunnel. "As builders continue to work off excess inventory, we expect that new housing starts will bottom out by the middle of 2007, with most of the decline occurring this year," he said in a statement.

The drop in single-family home starts in October was the largest by percentage in 19 months.

"It's not over," Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., said of the housing slump.

Applications for building permits, a sign of future construction, dropped for an eighth consecutive month, falling 6.3 percent to an annual rate of 1.535 million units. Some analysts consider that an ominous sign because of the large number of unsold houses already on the market.

"How long will it be before permits -- and starts -- turn around? With inventories at near-record highs, our view is the turnaround may not take place until well into 2007," said Brian A. Bethune, U.S. economist for Global Insight Inc., a financial forecasting and analysis firm.

Bethune said in a statement that the construction decline was "a lot bigger than we expected -- but did not come as a complete surprise."

September housing starts in the South rose 14 percent, while new building permits dropped 9.5 percent, he said. "We expected this discrepancy to be resolved through a substantial drop in starts in the South by the end of the year," he said. "With today's report, this expected correction took place in the riveting short time period of only one month."

Shepherdson called the October data "a sharp poke in the eye for those who argued that September's jump in starts was a signal that the housing crunch is coming to an end."

The U.S. housing market had record sales from 2001 to 2005, fueled by the lowest mortgage rates in more than four decades. This year's slump has prompted a debate among economists about the impact it will have on the rest of the economy.

"How far will the correction go? It's very difficult to tell, is the honest answer," Federal Reserve Chairman Ben S. Bernanke said in an interview last month. Bernanke predicted a rebound, citing low mortgage rates, rising incomes and low unemployment.