Housing Construction Level Lowest in Twelve Years

According to the Commerce Department, there was a 2.6 percent decline to a lower-than-forecast annual rate of 1.331 million houses built in August following July's 1.367 million. Building permits dropped 5.9 percent in August to a 1.307 million pace, the lowest since 1995.   
  
What’s more, the housing slump may deepen after borrowing costs rose and lenders shut off access to credit, causing economic growth to slow even more, economists said. The Federal Reserve lowered the benchmark rate by a half point yesterday to prevent a broader economic slowdown.   
  
“The housing market now has another down-leg ahead,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, who forecast starts would drop to a 1.33 million pace. “We don't expect sales to bottom out until late this year, and prices will likely moderate even further.''   
  
Consumer prices unexpectedly fell 0.1 percent in August as Americans paid less for gasoline and housing costs moderated, the Labor Department also reported today. The first decrease this year followed a 0.1 percent advance in July. Core prices, which exclude food and energy, rose 0.2 percent and were up 2.1 percent from a year earlier.   
  
Permits, a sign of future construction, were forecast to drop to 1.348 million, according to the survey median, with projections ranging from 1.22 million to 1.39 million. July permits were revised up to a 1.389 million pace from a previously reported 1.373 million.   
  
Construction of single-family homes plunged 7.1 percent to a 988,000 rate, the fewest since March 1993, today's report showed. Work on multi-family homes, such as townhouses and apartment buildings, jumped 13 percent to an annual rate of 343,000.   
  
The decrease in starts was led by a 38 percent plunge in the Northeast that was biggest since 1990 and an 18 percent decline in the West. Construction increased 11 percent in the South and 4.2 percent in the Midwest.   
  
The number of homes under construction fell 1.2 percent to a 1.132 million pace. Housing completions decreased 0.2 percent to an annual rate of 1.523 million.   
  
The number of properties authorized, but not yet started, fell 0.9 percent to 195,300.   
Falling real-estate prices and subprime mortgage defaults will probably prolong the homebuilding recession, already the worst in 16 years. As loans become harder to get, rising foreclosures will throw more properties back on the market, economists said.   
  
“The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally,'' the Fed said in a statement yesterday. Policy makers lowered the benchmark interest rate to 4.75 percent, the first cut in four years.