Home Construction Down in July
Thursday, August 16, 2007; 6:12 PM
WASHINGTON -- Construction of new homes fell in July to the lowest level in 10 1/2 years, and analysts said there is no end in sight to the deepening housing slump.
The Commerce Department reported Thursday that construction of new homes and apartments dropped by 6.1 percent in July from the June pace to an annual rate of 1.38 million units.
That was down 20.9 percent from the pace of activity a year ago and represented the slowest construction pace since January 1997.
Analysts said the housing problems are worsening because of rising mortgage defaults, especially in the market for subprime loans. That is dumping more homes on an already glutted market and causing banks to tighten up on lending standards, making it harder for prospective buyers to qualify for new mortgages.
"Declining starts and permits clearly reflect deepening problems in the mortgage market which erupted earlier this year in the subprime sector and now have spilled over into other components of mortgage finance," said David Seiders, chief economist for the National Association of Home Builders.
The group's builder confidence survey fell to 22 in early August, the lowest point since January 1991, when the country was going through another severe downturn in housing.
Seiders said it would be some time before housing would start to rebound. He is forecasting sales will stop falling by the end of this year and construction will stabilize in the middle of 2008.
Other analysts said to expect more bad news before housing stabilizes.
"As bad as July's numbers were, they are bound to get worse in the next one to three months because of the turmoil in financial markets today," said Patrick Newport, chief U.S. economist for Global Insight. "A mortgage is getting harder to get, especially for those who cannot qualify for prime loans."
The troubles in subprime mortgages, which are offered to borrowers with weak credit histories, have roiled other segments of the credit market and sent stock prices plunging in recent days as investors have worried about what big institutions could be put at risk because they cannot get repaid on loans they have made.
Wall Street experienced another turbulent day, with the Dow Jones industrial average falling at one point by more than 340 points only to stage a dramatic rebound as bargain hunters began to snap up battered stocks. The Dow finished the day down 15.69 points at 12,845.78.
The Federal Reserve and other central banks around the world have been pouring billions of dollars into banks in the past week to try to calm fears that credit is drying up.