Builders' Permit Requests Tumble

Drop Seen as Bad Sign for Housing

Home building posted a small gain in April, but permits for future construction fell by the largest amount in 17 years, a sign the nation's housing industry is still in a deep slump.

Construction of new homes and apartments rose to a seasonally adjusted annual rate of 1.528 million units in April, an increase of 2.5 percent from the March level.

Even with the improvement, housing construction is 16.1 percent lower than a year ago, reflecting the degree of the slide since a five-year boom in housing ended last year.

In a troubling sign for the future, builders cut their requests for new construction permits by 8.9 percent in April. It was the sharpest drop since a 24 percent fall in February 1990, another period when housing was going through a significant downturn. The slide pushed the annual rate for permits down to 1.429 million units, the lowest level in nearly 10 years.

While the April increase in construction was the third consecutive advance, analysts said the far more telling figure was the drop in permits, given that they are viewed as a better indicator of where housing is headed.

"The drop in permits is one of the biggest on record," said Bill Hampel, chief economist for the Credit Union National Association. "It suggests the contraction in housing is not over and has some months to play out."

The housing boom, which had record sales in new and existing homes for five years, ended in 2006 with many hot areas suffering big declines in sales and prices. The slump in housing has been a drag on the overall economy.

A survey by the National Association of Home Builders released Tuesday indicated that there were more troubles to come as builder sentiment fell to an index reading of just 30, matching the low point in the current downturn, set last September. The survey projects sales expectations for the next six months. A rating of 50 means more builders view sales conditions as good.

David F. Seiders, chief economist for the home builders, said the survey found that the rising defaults in the subprime mortgage market were adding to concerns about the ability to reduce a huge inventory of unsold new homes and were causing builders to cut back on their plans.

He said he had changed his forecast to show a bigger 22 percent drop in construction starts this year, with 2008 showing a small 4 percent improvement. The current slump would rank as the most severe since the 1990 housing downturn.

The 2.5 percent rise in construction starts in April reflected a 1.6 percent increase in single-family homes and a 6.3 percent jump in construction of multifamily units.