Housing Starts Sink Again To Lowest Level Since '59

A sold sign sits in front of a new home in Texas. Construction fell 7.5 percent in the West. The drop was most pronounced in the Northeast at 31 percent.
A sold sign sits in front of a new home in Texas. Construction fell 7.5 percent in the West. The drop was most pronounced in the Northeast at 31 percent. (By Matthew Nager -- Bloomberg News)
By Renae Merle
Washington Post Staff Writer
Thursday, November 20, 2008

New-home construction tumbled to a record low last month, according to government data released yesterday, further proof that the housing sector's woes keep deepening.

Declining demand and a glut of homes for sale have pushed builders to cut production. Builders have also struggled to secure financing amid rising foreclosure rates and a tight credit market, analysts said.

Housing starts fell to a seasonally adjusted 791,000 in October, down 4.5 percent from September, according to the Commerce Department. This is the lowest level on government record dating to January 1959. It is down 38 percent compared with October 2007.

The figures reinforce expectations that the housing sector, the root of much of the financial crisis, will not stabilize until at least the middle of next year, analysts said. Even though builders have curbed production, there are far more homes on the market than buyers.

"Although housing starts have fallen to an all-time low, and inventories of new homes are falling, these declines have hardly made a dent in the excess number of homes for sale," said Patrick Newport, U.S. economist for IHS Global Insight.

The reductions are most pronounced in the Northeast, where home construction fell 31 percent last month. Building dropped 13.7 percent in the Midwest, increased 7.5 percent in the West and 1.5 percent in the South.

"It's not good, but not a surprise," said Guy Cecala, publisher of Inside Mortgage Finance Publications. "In terms of housing starts, there is still too much inventory out there. It is going to be at least six months before we see any improvements in either new-home or existing-home sales."

Most significant, analysts said, was a 12 percent drop in building permit applications during October compared with the previous month -- another record. Applications fell 40 percent compared with the same period a year ago. Permit applications reflect future activity in the sector. The drop means that home construction will likely fall by double digits in November and December, analysts said.

The data echoes a survey released Tuesday showing that homebuilders' confidence in the market has plunged to a record low, said David Seiders, economist at the National Association of Home Builders. He said it also reinforces what builders argue is the need for Congress to help jump-start the housing market.

The association is lobbying for a 10 percent tax credit of up to $22,000 for homebuyers and a temporary interest-rate reduction on 30-year fixed-rate mortgages. "Stabilization of house prices is the key to getting rid of this disastrous downward spiral in the national and global economy and this mess in the credit markets," Seiders said.

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